Retirement in the Shadow (Banking)

Guillermo Ordoñez, Facundo Piguillem

NBER Working Paper No. 26337
Issued in October 2019
NBER Program(s):The Program on Aging, The Corporate Finance Program, The Economic Fluctuations and Growth Program, The Monetary Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w26337