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

Andrew B. Abel
Econometrica
Vol. 71, No. 2 (Mar., 2003), pp. 551-578
Published by: The Econometric Society
Stable URL: http://www.jstor.org/stable/3082067
Page Count: 28
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The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security
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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.

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