The Equity Premium and the Baby Boom
No 155, Econometric Society 2004 North American Winter Meetings from Econometric Society
This paper explores the quantitative impact of the Baby Boom on stock and bond returns. It constructs a neoclassical growth model with overlapping generations, in which agents make a portfolio decision over risky capital and safe bonds in zero net supply. The model has exogenous technology and population shocks that are calibrated to match long run data for the US. With agents allowed to borrow freely by shorting bonds, the model fails to match the historical equity premium by a large margin and generates only small asset market effects over a simulated Baby Boom. When agents are constrained in their ability to borrow, the model comes close to matching the historical equity premium and suggests that there will be a sharp rise in the equity premium when the Baby Boomers retire, driven by a large decline in bond returns as Baby Boomers seek to hold the riskless asset in retirement
Keywords: Equity premium; population aging; portfolio choice (search for similar items in EconPapers)
JEL-codes: E27 G11 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-dge
References: Add references at CitEc
Citations View citations in EconPapers (7) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: /RePEc:ecm:nawm04:155
Access Statistics for this paper
More papers in Econometric Society 2004 North American Winter Meetings from Econometric Society
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().