NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Andrew B. Abel

NBER Working Paper No. 9210*
Issued in September 2002
NBER Program(s):   AG    AP    EFG    PE

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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.

*Published: Abel, Andrew B. "The Effects Of A Baby Boom On Stock Prices And Capital Accumulation In The Presence Of Social Security," Econometrica, 2003, v71(2,Mar), 551-578.

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