The Baby Boom and the Stock Market Boom

24 Pages Posted: 21 Oct 2003

See all articles by Kyung-Mook Lim

Kyung-Mook Lim

Korea Development Institute (KDI) - Money and Finance Division

David N. Weil

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

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Abstract

This paper addresses two issues. The first is whether demographic change was plausibly responsible for the run-up in stock prices over the last decade, and whether an attempt by the baby-boom cohort to cash out of its investments in the period 2010-2030 might lead to an "asset meltdown". The second issue is whether the rise in dependency that will accompany the retirement of the baby-boom cohort calls for an increase in national saving. We analyze these issues using a forward-looking macro-demographic model, and show that they are related via the existence of installation costs for capital. If such costs are sufficiently large, then demographics do have the power to affect stock prices, but "saving for America's old age" is less optimal. However, conventional estimates of capital installation costs are not large enough to explain large stock price movements in response to actual demographic change.

Suggested Citation

Lim, Kyung-Mook and Weil, David Nathan, The Baby Boom and the Stock Market Boom. Scandinavian Journal of Economics, Vol. 105, pp. 359-378, September 2003. Available at SSRN: https://ssrn.com/abstract=443767

Kyung-Mook Lim (Contact Author)

Korea Development Institute (KDI) - Money and Finance Division ( email )

Seoul 130-012
United States

David Nathan Weil

Brown University - Department of Economics ( email )

Box B
Providence, RI 02912
United States
401-863-1754 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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