Vermögenspreise, Alterung und Ersparnis / Asset Prices, Aging and Saving: Gibt es einen demografisch bedingten „Asset Meltdown“? / Should We Expect an Asset Meltdown for Demographic Reasons?
In simple overlapping-generation models, the young save by purchasing assets from the old, who in turn finance their consumption by spending the proceeds. If household saving of a shrinking younger generation falls short of planned, constant asset sales by the old generation, asset prices might drop. This note argues that the above asset-meltdown argument holds only in case of a strict cash-in-advance constraint in a model with sharp demarcations between periods. Here, the shrinking size of the young generation establishes a supply-side constraint for production, and the old cannot realize the planned value of asset sales so that goods prices cannot be bidden up. In a more realistic setting of simultaneous and slow changes, only some flexibility and elasticity of the financial system is needed to resolve the cash-in-advance constraint. Excess goods demand then will produce rising prices. Then, necessarily additional savings (in the form of undistributed profits) arise as a flow-of-funds effect, which in turn help to maintain asset market equilibrium. Asset prices nevertheless might fall because of rising interest rates if monetary policy reacts to inflationary tendencies (if goods-supply constraints persist). But this line of reasoning is different from the shortage-of-saving myth.
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Volume (Year): 227 (2007)
Issue (Month): 1 (February)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans Fehr & Sabine Jokisch, 2006. "Demographischer Wandel und internationale Finanzmärkte," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(4), pages 501-517, November.
- Raimond Maurer & Marcel Marekwica & Steffen Sebastian, 2006. "Asset Meltdown - Fact Or Fiction?," ERES eres2006_269, European Real Estate Society (ERES).
- James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
- Andrew B. Abel, 2001.
"Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?,"
The Review of Economics and Statistics,
MIT Press, vol. 83(4), pages 589-595, November.
- Andrew B. Abel, 2001. "Will Bequests Attenuate the Predicted Meltdown in Stock Prices When Baby Boomers Retire?," NBER Working Papers 8131, National Bureau of Economic Research, Inc.
- Andrew B. Abel, 2001. "Will bequests attenuate the predicted meltdown in stock prices when baby boomers retire?," Working Papers 01-2, Federal Reserve Bank of Philadelphia.
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