Economy Wide Risk Diversification in a Three-Pillar Pension System

60 Pages Posted: 29 Oct 2011

See all articles by Cai Cai Du

Cai Cai Du

affiliation not provided to SSRN

Joan Muysken

University of Maastricht

Olaf Sleijpen

European Central Bank (ECB); De Nederlandsche Bank

Date Written: March 1, 2011

Abstract

We model a three-pillar pension system and analyse in this context the impact of exogenous shocks on an open economy, using an overlapping generations model where individuals live for two periods. The three-pillar pension system consists of (1) a PAYG pension system, (2) a defined benefit pension fund, and (3) private savings. The economy is exposed to an ageing trend, inflation and a stock market crash. We show that in the three-pillar pension system the impact of these shocks on the economy is mitigated when compared to a two-pillar system, since each shock has a different impact on the three pillars. In order to illustrate the working of the model with respect to the impact of these shocks, both in magnitude and the development over time, we provide simulation results for the Netherlands.

Suggested Citation

Du, Cai Cai and Muysken, Joan and Sleijpen, Olaf, Economy Wide Risk Diversification in a Three-Pillar Pension System (March 1, 2011). De Nederlandsche Bank Working Paper No. 286. Available at SSRN: https://ssrn.com/abstract=1950598 or http://dx.doi.org/10.2139/ssrn.1950598

Cai Cai Du (Contact Author)

affiliation not provided to SSRN ( email )

Joan Muysken

University of Maastricht ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Olaf Sleijpen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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