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Economy wide risk diversification in a three-pillar pension system

  • Du Cai Cai
  • Muysken Joan
  • Sleijpen Olaf

    (METEOR)

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    We model a three-pillar pension system and analyse the impact of exogenous shocks on an open economy, using an overlapping generation model where individuals live for two periods. The three-pillar pension system consists of (1) a PAYG pension system, (2) a defined benefits pension fund, and (3) private savings. The economy is exposed to an ageing trend, inflation and a stock market crash. We show that in the three-pillar pension system the impact of these shocks on the economy is mitigated when compared to a two- pillar system, since each shock has a different impact on the three pillars. In order to illustrate the working of the model with respect to the impact of shocks, both in magnitude and the development over time, we provide simulation results for the Netherlands.

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    File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:388411b1-b158-426c-948a-275f856ccb38/datastreams/ASSET1/content
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    Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 055.

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    Date of creation: 2010
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    Handle: RePEc:unm:umamet:2010055
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    1. repec:dgr:kubcen:2006101 is not listed on IDEAS
    2. Nick Draper & Alex Armstrong, 2007. "GAMMA; a simulation model for ageing, pensions and public finances," CPB Document 147, CPB Netherlands Bureau for Economic Policy Analysis.
    3. HENIN, P. Y. & WEITZENBLUM, Th., 2005. "Welfare effects of alternative pension reforms: Assessing the transition costs for French socio-occupational groups," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(03), pages 249-271, November.
    4. Lans Bovenberg & Harald Uhlig, 2006. "Pension Sytems and the Allocation of Macroeconomic Risk," SFB 649 Discussion Papers SFB649DP2006-066, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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    7. Kemmerling, Achim & Neugart, Michael, 2009. "Financial market lobbies and pension reform," European Journal of Political Economy, Elsevier, vol. 25(2), pages 163-173, June.
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    14. Verbic, Miroslav, 2007. "Modelling the pension system in an overlapping-generations general equilibrium modelling framework," MPRA Paper 10350, University Library of Munich, Germany.
    15. Oliveira Martins, Joaquim & Gonand, Frédéric & Antolín, Pablo & de la Maisonneuve, Christine & Yoo, Kwang-Yeol, 2005. "The Impact of Ageing on Demand, Factor Markets and Growth," Economics Papers from University Paris Dauphine 123456789/11049, Paris Dauphine University.
    16. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
    17. Bas van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "The Case For Pay-As-You-Go Pensions In A Service Economy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 151-165, 05.
    18. Cagacan DEGER, 2011. "Pension Reform in an Overlapping Model with Multiple Social Security Systems," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 11(4), pages 563-572.
    19. Alex Armstrong & Nick Draper & André Nibbelink & Ed Westerhout, 2007. "Fiscal prefunding in response to demographic uncertainty," CPB Discussion Paper 85, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Konstantins Benkovskis, 2006. "The Effect of Latvian Pension Reform on Savings and Government Budget," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 6(1), pages 3-21, July.
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