What Will Happen to Financial Markets When the Baby Boomers Retire?

Robin Brooks

No 2000/018, IMF Working Papers from International Monetary Fund

Abstract: This paper explores whether changes in the age distribution have significant effects on financial markets that are rational and forward-looking. It presents an overlapping generations model in which agents make a portfolio decision over stocks and bonds when saving for retirement- Using the model to simulate a baby boom-baby bust demonstrates that returns to baby boomers will be substantially below returns to earlier generations, even when markets are rational and forward-looking. This result is important because the current debate over how to reform pay-as-you-go pension systems often takes historical returns on financial assets—and on the equity premium—as given.

Keywords: WP; descriptive statistics; expected return; equity premium; population aging; pension reform; riskless asset; asset market effect; bond return fall; asset market implication; return differential; algorithm proceeds; Consumption; Retirement; Income; Stocks; Securities markets; Africa; Asia and Pacific; baby boom-baby bust; bond holding; wage income; Consumption-Saving model; Wages (search for similar items in EconPapers)
Pages: 36
Date: 2000-01-01
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Citations: View citations in EconPapers (46)

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Working Paper: WHAT WILL HAPPEN TO FINANCIAL MARKETS WHEN THE BABY BOOMERS RETIRE? (2000)
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