Working Paper: NBER ID: w9210
Authors: Andrew B. Abel
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; stock prices; capital accumulation; social security
JEL Codes: E22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| baby boom (J11) | national saving (D14) |
| baby boom (J11) | investment (G31) |
| national saving (D14) | price of capital (G31) |
| investment (G31) | price of capital (G31) |
| price of capital (G31) | capital prices (P22) |
| social security (H55) | national saving (D14) |
| social security (H55) | investment (G31) |