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Secular Stagnation? Growth, Asset Returns and Welfare in the Next Decades: First Results

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  • Geppert, Christian
  • Ludwig, Alexander
  • Abiry, Raphael

    (Munich Center for the Economics of Aging (MEA))

Abstract

Ongoing demographic change will lead to a relative scarcity of raw labor to the effect that output growth will be decreasing in the next decades, a secular stagnation. As physical capital will be relatively abundant, this decrease of output will be accompanied by reductions of asset returns. We quantify these effects for the US economy by developing an overlapping generations model with risky and risk-free assets. Without adjustments of human capital, risky returns decrease until 2035 by about 0.7 percentage point, and the risk-free rate by about one percentage point, leading to substantial welfare losses for asset rich households. Per capita output is reduced by 6%. Endogenous human capital adjustments strongly mitigate these effects. We conclude that human capital policies will be crucial in the context of labor shortages.
(This abstract was borrowed from another version of this item.)

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  • Geppert, Christian & Ludwig, Alexander & Abiry, Raphael, 1970. "Secular Stagnation? Growth, Asset Returns and Welfare in the Next Decades: First Results," MEA discussion paper series 201605, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  • Handle: RePEc:mea:meawpa:201605
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    More about this item

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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