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

Andrew Abel ()

Econometrica, 2003, vol. 71, issue 2, pages 551-578

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. Copyright The Econometric Society 2003.

Date: 2003
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Working Paper: The effects of a baby boom on stock prices and capital accumulation in the presence of Social Security (2002)
Working Paper: The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security (2002)
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