Asset Prices and Consumption in a Model of Perpetual Youth
I construct a general equilibrium overlapping generations model with heterogeneous agents and obtain analytical solutions to asset prices, consumption, and asset demands. Individuals have constant absolute risk aversion and a constant probability of dying. Agents have three stages in their lives. In the first stage, agents are young and constrained from investing in stocks. In the second stage they work, and in the third they retire. I analyze asset prices numerically and with comparative statics. Changing any exogenous parameter has large effects on asset prices when there are large demographic changes to the population constrained from investing in stocks.
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