Asset Pricing Implications of Demographic Change
97 Pages Posted: 11 May 2011 Last revised: 20 Jan 2017
Date Written: January 19, 2017
I solve an overlapping generations model featuring stochastic birth and death rates in general equilibrium. I provide sufficient conditions for the interest rate to be low and the equity premium high during times of high birth and low mortality rates. These qualitative results are consistent with the data. Demographic changes further explain a sizable term premium in long term bonds and a substantial time variation in the real interest rate, equity premium and conditional stock price volatility.
Keywords: baby boom, demographic, transition, uncertainty, overlapping generations, intertemporal consumption choice, long run risk, general equilibrium
JEL Classification: G11, G12, G17, D51, D91
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