Working Paper: NBER ID: w26337
Authors: Guillermo Ordoñez; Facundo Piguillem
Abstract: The U.S. economy has recently experienced two, seemingly unrelated, phenomena: a large increase in post-retirement life expectancy and a major expansion in securitization and shadow banking activities. We argue they are intimately related. Agents rely on financial intermediaries to save for post-retirement consumption. When expecting to live longer, they rely more heavily on intermediaries that use securitization, with riskier but higher returns. A quantitative evaluation of the model shows the potential of the demographic transition to account for a boom in credit and output, but only when it triggers a more extensive use of securitization and shadow banking.
Keywords: shadow banking; retirement savings; securitization; life expectancy
JEL Codes: E21; E44; G21; J11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased life expectancy (J17) | Increased demand for savings (E21) |
| Increased demand for savings (E21) | Rise in shadow banking and securitization (F65) |
| Increased life expectancy (J17) | Rise in shadow banking and securitization (F65) |
| Rise in shadow banking (F65) | Credit boom (F65) |
| Demographic transition (J11) | Domestic savings glut (E21) |
| Domestic savings glut (E21) | Credit boom (F65) |
| Increased life expectancy (J17) | Financial market expansion (G19) |