The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security

32 Pages Posted: 3 Oct 2001

See all articles by Andrew B. Abel

Andrew B. Abel

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

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Date Written: December 2000

Abstract

Is the stock market boom a result of the baby boom? This paper develops an overlapping generations model in which a baby boom is modeled as a high realization of a random birth rate, and the price of capital is determined endogenously by a convex cost of adjustment. A baby boom increases national saving and investment and thus causes an increase in the price of capital. The price of capital is mean-reverting so the initial increase in the price of capital is followed by a decrease. Social Security can potentially affect national saving and investment, though in the long run, it does not affect the price of capital.

Keywords: baby boom, social security, stock prices, Golden Rule

Suggested Citation

Abel, Andrew B., The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security (December 2000). Available at SSRN: https://ssrn.com/abstract=286072 or http://dx.doi.org/10.2139/ssrn.286072

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