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Ageing, property prices and money demand

  • Kiyohiko Nishimura
  • Elod Takáts

When the baby boomers joined the workforce and started saving, money supply and property prices entered a rising trajectory. We conclude that demography was the long-run driver of this process, basing our argument on data from 22 advanced economies for the 1950-2010 period. According to our lifecycle model, large working-age populations saved for their old age by investing in property and broad money instruments, such as deposits. In the past, savings activity by baby boomers drove up property prices and also increased demand for money. As baby boomers retire, these dynamics will go into reverse. Falling demand for savings, including money and deposits, might hinder banks in their efforts to collect deposits and thereby bring down excessively high loan-to-deposit ratios. Our model also confirms that monetary stability contributes to long-run property price stability.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 385.

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Length: 32 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:bis:biswps:385
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  1. Berg, Lennart, 1996. "Age Distribution, Saving and Consumption in Sweden," Working Paper Series 1996:22, Uppsala University, Department of Economics.
  2. Lindh, Thomas & Malmberg, Bo, 2000. "Can age structure forecast inflation trends?," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 31-49.
  3. Ray C. Fair & Kathryn M. Dominguez, 1987. "Effects of the Changing U.S. Age Distribution on Macroeconomic Equations," NBER Working Papers 2280, National Bureau of Economic Research, Inc.
  4. Bakshi, Gurdip S & Chen, Zhiwu, 1994. "Baby Boom, Population Aging, and Capital Markets," The Journal of Business, University of Chicago Press, vol. 67(2), pages 165-202, April.
  5. Patric H. Hendershott, 1991. "Are Real House Prices Likely to Decline by 47 Percent?," NBER Working Papers 3880, National Bureau of Economic Research, Inc.
  6. N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  7. Mayor, Thomas H & Pearl, Lawrence R, 1984. "Life-Cycle Effects, Structural Change and Long-Run Movements in the Velocity of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 175-84, May.
  8. John Geanakoplos & Michael Magill & Martine Quinzii, 2004. "Demography and the Long Run Behavior of the Stock Market," Levine's Bibliography 122247000000000643, UCLA Department of Economics.
  9. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  10. Robin Brooks, 2002. "Asset-Market Effects of the Baby Boom and Social-Security Reform," American Economic Review, American Economic Association, vol. 92(2), pages 402-406, May.
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