Secular stagnation? Growth, asset returns and welfare in the next decades: First results

Christian Geppert, Alexander Ludwig and Raphael Abiry

No 145, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: Ongoing demographic change will lead to a relative scarcity of raw labor to the effect that output growth will be decreasing in the next decades, a secular stagnation. As physical capital will be relatively abundant, this decrease of output will be accompanied by reductions of asset returns. We quantify these effects for the US economy by developing an overlapping generations model with risky and risk-free assets. Without adjustments of human capital, risky returns decrease until 2035 by about 0.7 percentage point, and the risk-free rate by about one percentage point, leading to substantial welfare losses for asset rich households. Per capita output is reduced by 6%. Endogenous human capital adjustments strongly mitigate these effects. We conclude that human capital policies will be crucial in the context of labor shortages.

Keywords: secular stagnation; demographic change; overlapping generations; natural rate; equity premium; growth; welfare; human capital (search for similar items in EconPapers)
JEL-codes: C68 E17 G12 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Secular Stagnation? Growth, Asset Returns and Welfare in the Next Decades: First Results (1970)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:145

DOI: 10.2139/ssrn.2841555

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