Demographic Change and the Rates of Return to Risky Capital and Safe Debt

Wolfgang Kuhle ()
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Wolfgang Kuhle: Max Planck Institute for Research on Collective Goods

A chapter in Inequality and Finance in Macrodynamics, 2017, pp 177-190 from Springer

Abstract: Abstract This paper studies how the upcoming demographic transition will affect the returns to risky capital and safe government debt. Using a neoclassical two-generations-overlapping model, we show that the entrance of smaller cohorts into the labor market will lower both interest rates. The risky rate, however, will react more sensitive than the risk-free rate. Consequently, the risk premium declines when an economy transitions from high fertility to low fertility.

Keywords: Risky Asset; Demographic Transition; Government Debt; Portfolio Choice; Equity Premium (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-319-54690-2_8

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DOI: 10.1007/978-3-319-54690-2_8

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