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The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security

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  • Andrew B. Abel

Abstract

Is the stock market boom a result of the baby boom? This paper develops an overlapping generations model in which a baby boom is modeled as a high realization of a random birth rate, and the price of capital is determined endogenously by a convex cost of adjustment. A baby boom increases national saving and investment and thus causes an increase in the price of capital. The price of capital is mean-reverting so the initial increase in the price of capital is followed by a decrease. Social Security can potentially affect national saving and investment, though in the long run, it does not affect the price of capital.

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File URL: http://www.nber.org/papers/w9210.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9210.

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Date of creation: Sep 2002
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Publication status: published as Abel, Andrew B. "The Effects Of A Baby Boom On Stock Prices And Capital Accumulation In The Presence Of Social Security," Econometrica, 2003, v71(2,Mar), 551-578.
Handle: RePEc:nbr:nberwo:9210
Note: AG AP EFG PE
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  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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  1. Basu, Parantap, 1987. "An Adjustment Cost Model of Asset Pricing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 609-21, October.
  2. Andrew B. Abel, 2001. "On the Invariance of the Rate of Return to Convex Adjustment Costs," NBER Working Papers 8649, National Bureau of Economic Research, Inc.
  3. Henning Bohn, 1999. "Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies," NBER Working Papers 7030, National Bureau of Economic Research, Inc.
  4. Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December.
  5. Abel, Andrew B, et al, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 1-19, January.
  6. Andrew B. Abel, 2001. "Will bequests attenuate the predicted meltdown in stock prices when baby boomers retire?," Working Papers 01-2, Federal Reserve Bank of Philadelphia.
  7. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  8. Zilcha, Itzhak, 1991. "Characterizing efficiency in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 55(1), pages 1-16, October.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. L'impact de la démographie sur le prix des actifs
    by bertrandachou@orange.fr (Bertrand Achou) in BS Initiative on 2013-12-19 04:43:28
  2. Can demographics explain why the income shares of high earners have increased?
    by Stephen Gordon in Worthwhile Canadian Initiative on 2011-09-18 21:22:12
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