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What Will Happen to Financial Markets When the Baby Boomers Retire?

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  • Robin Brooks

Abstract

This paper explores whether changes in the age distribution have significant effects on financial markets that are rational and forward-looking. It presents an overlapping generations model in which agents make a portfolio decision over stocks and bonds when saving for retirement- Using the model to simulate a baby boom-baby bust demonstrates that returns to baby boomers will be substantially below returns to earlier generations, even when markets are rational and forward-looking. This result is important because the current debate over how to reform pay-as-you-go pension systems often takes historical returns on financial assets—and on the equity premium—as given.

Suggested Citation

  • Robin Brooks, 2000. "What Will Happen to Financial Markets When the Baby Boomers Retire?," IMF Working Papers 00/18, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/18
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    Keywords

    Economic models; Capital markets; Pensions; equity premium; population aging; pension reform; young workers; retirement; pension; retirement benefit; retirement consumption;

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