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Ageing, property prices and money demand

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  • Kiyohiko Nishimura
  • Elod Takáts

Abstract

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.

Suggested Citation

  • Kiyohiko Nishimura & Elod Takáts, 2012. "Ageing, property prices and money demand," BIS Working Papers 385, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:385
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    References listed on IDEAS

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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. Fair, Ray C & Dominguez, Kathryn M, 1991. "Effects of the Changing U.S. Age Distribution on Macroeconomic Equations," American Economic Review, American Economic Association, vol. 81(5), pages 1276-1294, December.
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    5. 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 467-467.
    6. Hendershott, Patric H., 1991. "Are real house prices likely to decline by 47 percent?," Regional Science and Urban Economics, Elsevier, vol. 21(4), pages 553-563, December.
    7. 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.
    8. John Geanakoplos & Michael Magill & Martine Quinzii, 2003. "Demography and the Long Run Behavior of the Stock Market," Levine's Working Paper Archive 506439000000000269, David K. Levine.
    9. 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.
    10. Lindh, Thomas & Malmberg, Bo, 2000. "Can age structure forecast inflation trends?," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 31-49.
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    Cited by:

    1. Tamai, Yoshihiro & Shimizu, Chihiro & Nishimura, Kiyohiko G., 2017. "Aging and Property Prices: A Theory of Very Long Run Portfolio Choice and Its Predictions on Japanese Municipalities in the 2040s," HIT-REFINED Working Paper Series 65, Institute of Economic Research, Hitotsubashi University.
    2. Yumi Saita & Chihiro Shimizu & Tsutomu Watanabe, 2013. "Aging and Real Estate Prices: Evidence from Japanese and US Regional Data," CARF F-Series CARF-F-334, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Saita, Yumi & Shimizu, Chihiro & Watanabe, Tsutomu, 2013. "Aging and Real Estate Prices: Evidence from Japanese and US Regional Data," HIT-REFINED Working Paper Series 2, Institute of Economic Research, Hitotsubashi University.

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    Keywords

    Ageing; property prices; money demand;

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