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Old folks and spoiled brats : Why the baby boomers' saving crisis need not be that bad

  • Monika BÜTLER
  • Philipp HARMS

We study the impact of an anticipated "baby boom" in an overlapping generations economy. The rise of the working population lowers the wage, and the high demand for assets causes a rise in the price of capital which will be reversed when the baby boomers leave the work-force. However, the swings in factor prices are substantially dampened if we allow for more than two generations, endogenous labor supply, and convex capital adjustment costs. This is mainly due to the intertemporal shifts in labor market participation that can be observed if agents work for more than one period. Optimal saving and labor supply decisions of the baby boomers' preceding and subsequent generations partly offset the impact of the unfavorable demographic shock. Accordingly, the impact of a baby boom on the welfare of different generations crucially depends on the elasticity of labor supply.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 01.07.

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Length: 27 pages
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:lau:crdeep:01.07
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: +41-21-692.33.65
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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  1. Ríos-Rull José-Víctor, 2001. "Population Changes and Capital Accumulation: The Aging of the Baby Boom," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-48, May.
  2. Andrew B. Abel, 2003. "The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security," Econometrica, Econometric Society, vol. 71(2), pages 551-578, March.
  3. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
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