Aging and Asset Prices: Report commissioned by the Observatoire de l’Epargne Européenne (OEE)

Börsch-Supan, Axel ; Ludwig, Alexander ; Sommer, Mathias

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URN: urn:nbn:de:bsz:180-madoc-15568
Document Type: Working paper
Year of publication: 2005
The title of a journal, publication series: MEA Discussion Papers
Volume: 129
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 300 Social sciences, sociology, anthropology
Subject headings (SWD): Sparverhalten , Älterer Mensch , Investmentsparen , Frankreich , Deutschland , USA
Abstract: Aging has complex effects on global capital markets. If elderly people save less than younger people, an aging society saves less. This should increase interest rates since supply of funds gets tight. At the same time, the younger generation becomes ever smaller, so there is also less demand for new investment. The equilibrium effect is thus uncertain. Pessimists believe in the so-called “asset meltdown” hypothesis: households demand for financial assets will plummet between 2030 and 2040, when the baby boomers retire and die, asset values will melt down dramatically and the return on financial investments will fall sharply. Optimists stress economic mechanisms which soften or even reverse the negative impacts of aging on capital markets. One such important counter-mechanism is an aging society’s need for more capital since capital must increasingly replace labor and, as described, supply of funds will be scarce. This rising demand for real capital increases the return to capital at exactly the same time as pessimists fear the prospect of an asset meltdown. This study will look at the general equilibrium outcome according to several quantitative studies from France, Germany and the US, plus corroborating evidence on saving behavior and investment demand.
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