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Will Bequests Attenuate the Predicted Meltdown in Stock Prices When Baby Boomers Retire?

Andrew B. Abel
The Review of Economics and Statistics
Vol. 83, No. 4 (Nov., 2001), pp. 589-595
Published by: MIT Press
Stable URL: http://www.jstor.org/stable/3211754
Page Count: 7
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Will Bequests Attenuate the Predicted Meltdown in Stock Prices When Baby Boomers Retire?
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Abstract

General equilibrium models that predict a reduction in asset prices when baby boomers retire typically assume that people consume all of their wealth before they die. However, many people hold substantial wealth when they die. I develop a rational expectations, general equilibrium model with a bequest motive. In this model, a baby boom increases stock prices, and stock prices are rationally anticipated to fall when the baby boomers retire, even though consumers continue to hold assets throughout retirement. The continued high demand for assets by retired baby boomers does not attenuate the fall in the price of capital.

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