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Demographic Change and the Rates of Return to Risky Capital and Safe Debt

In: Inequality and Finance in Macrodynamics

Author

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  • Wolfgang Kuhle

    (Max Planck Institute for Research on Collective Goods)

Abstract

This paper studies how the upcoming demographic transition will affect the returns to risky capital and safe government debt. Using a neoclassical two-generations-overlapping model, we show that the entrance of smaller cohorts into the labor market will lower both interest rates. The risky rate, however, will react more sensitive than the risk-free rate. Consequently, the risk premium declines when an economy transitions from high fertility to low fertility.

Suggested Citation

  • Wolfgang Kuhle, 2017. "Demographic Change and the Rates of Return to Risky Capital and Safe Debt," Dynamic Modeling and Econometrics in Economics and Finance, in: Bettina Bökemeier & Alfred Greiner (ed.), Inequality and Finance in Macrodynamics, pages 177-190, Springer.
    • Handle: RePEc:spr:dymchp:978-3-319-54690-2_8
    DOI: 10.1007/978-3-319-54690-2_8
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