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Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?

  • Andrew B. Abel

General equilibrium models that predict a reduction in asset prices when baby boomers retire typically assume that people consume all of their wealth before they die. However, many people hold substantial wealth when they die. I develop a rational expectations, general equilibrium model with a bequest motive. In this model, a baby boom increases stock prices, and stock prices are rationally anticipated to fall when the baby boomers retire, even though consumers continue to hold assets throughout retirement. The continued high demand for assets by retired baby boomers does not attenuate the fall in the price of capital. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/003465301753237678
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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 83 (2001)
Issue (Month): 4 (November)
Pages: 589-595

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Handle: RePEc:tpr:restat:v:83:y:2001:i:4:p:589-595
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  1. Andrew B. Abel, 2002. "The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security," NBER Working Papers 9210, National Bureau of Economic Research, Inc.
  2. Robin Brooks, 2000. "What Will Happen To Financial Markets When The Baby Boomers Retire?," Computing in Economics and Finance 2000 92, Society for Computational Economics.
  3. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
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