This paper studies whether the upward trend of real energy prices since the 1990s can account for the decreasing trend of real interest rates in energy importers. Using VARs, I first provide empirical evidence that a rise in real energy prices leads to a fall in real interest rate in energy-importing G-7 countries. I then show, using a life-cycle model, that the increasing trend of the real energy price decreases the equilibrium real interest rate by about 1.5 percentage points between 1990 and 2018. Due to increases in the real energy price, energy consumption falls, which dampens consumption of manufactures because of the complementarity between energy and manufactures in consumption. Accordingly, aggregate consumption goes down, which puts downward pressure on the real interest rate. Moreover, the increased real energy price decreases energy inputs in production, and hence capital/energy ratio rises, inducing lower real interest rate via falls in the marginal product of capital. By simulating the model, I also find that increases in the real energy price have more influences on the declining real interest rate in energy importers during 1990-2018 than population aging.
{"title":"Declining Real Interest Rates: The Role of Energy Prices in Energy Importers","authors":"Myunghyun Kim","doi":"10.2139/ssrn.3779685","DOIUrl":"https://doi.org/10.2139/ssrn.3779685","url":null,"abstract":"This paper studies whether the upward trend of real energy prices since the 1990s can account for the decreasing trend of real interest rates in energy importers. Using VARs, I first provide empirical evidence that a rise in real energy prices leads to a fall in real interest rate in energy-importing G-7 countries. I then show, using a life-cycle model, that the increasing trend of the real energy price decreases the equilibrium real interest rate by about 1.5 percentage points between 1990 and 2018. Due to increases in the real energy price, energy consumption falls, which dampens consumption of manufactures because of the complementarity between energy and manufactures in consumption. Accordingly, aggregate consumption goes down, which puts downward pressure on the real interest rate. Moreover, the increased real energy price decreases energy inputs in production, and hence capital/energy ratio rises, inducing lower real interest rate via falls in the marginal product of capital. By simulating the model, I also find that increases in the real energy price have more influences on the declining real interest rate in energy importers during 1990-2018 than population aging.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116900687","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Labor markets are characterized by large heterogeneity in job stability. Some workers hold lifetime jobs, whereas others cycle repeatedly in and out of employment. This paper explores the economic consequences of such heterogeneity. Using Survey of Consumer Finances (SCF) data, we document a systematic positive relationship between job stability and wealth accumulation. Per dollar of income, workers with more stable careers hold more wealth. We also develop a life-cycle consumption-saving model with heterogeneity in job stability that is jointly consistent with empirical labor market mobility, earnings, consumption, and wealth dynamics. Using the structural model, we explore the consequences of heterogeneity in job stability at the individual and macroeconomic level. At the individual level, we find that a bad start to the labor market leaves long-lasting scars. The income and consumption level for a worker who starts working life from an unstable job is, even 25 years later, 5 percent lower than that of a worker who starts with a stable job. For the macroeconomy, we find welfare gains of 1.6 percent of lifetime consumption for labor market entrants from a secular decline in U.S. labor market dynamism.
{"title":"Job Stability, Earnings Dynamics, and Life-Cycle Savings","authors":"M. Kuhn, Gašper Ploj","doi":"10.2139/ssrn.3734755","DOIUrl":"https://doi.org/10.2139/ssrn.3734755","url":null,"abstract":"Labor markets are characterized by large heterogeneity in job stability. Some workers hold lifetime jobs, whereas others cycle repeatedly in and out of employment. This paper explores the economic consequences of such heterogeneity. Using Survey of Consumer Finances (SCF) data, we document a systematic positive relationship between job stability and wealth accumulation. Per dollar of income, workers with more stable careers hold more wealth. We also develop a life-cycle consumption-saving model with heterogeneity in job stability that is jointly consistent with empirical labor market mobility, earnings, consumption, and wealth dynamics. Using the structural model, we explore the consequences of heterogeneity in job stability at the individual and macroeconomic level. At the individual level, we find that a bad start to the labor market leaves long-lasting scars. The income and consumption level for a worker who starts working life from an unstable job is, even 25 years later, 5 percent lower than that of a worker who starts with a stable job. For the macroeconomy, we find welfare gains of 1.6 percent of lifetime consumption for labor market entrants from a secular decline in U.S. labor market dynamism.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114807633","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose an axiomatic approach to characterize normative criteria for the evaluation of lifetime income distributions according to the opportunity egalitarian perspective (Roemer, 1998). In a setting in which both individual incomes and predetermined circumstances are variable over time, we adopt a norm-based approach to the measurement of inequality, and propose two different benchmark distributions, referring respectively to the ex ante and the ex post versions of equality of opportunity. We first aggregate over time, thereby characterizing measures of inter-temporal individual inequality of opportunity, and then aggregate the individual measures into a societal measure. Our individual measure results to be a weighted average of individuals’ opportunity gap experienced in each period. Our aggregate measure is an average of a concave transformation of the individual inter-temporal opportunity gap and can be interpreted as an inter-temporal inequality of opportunity index. We apply our framework to evaluate the Korean distribution of income from an inter-temporal and opportunity egalitarian perspective.
{"title":"Inter-temporal Inequality of Opportunity","authors":"Domenico Moramarco, F. Palmisano, Vito Peragine","doi":"10.2139/ssrn.3654123","DOIUrl":"https://doi.org/10.2139/ssrn.3654123","url":null,"abstract":"We propose an axiomatic approach to characterize normative criteria for the evaluation of lifetime income distributions according to the opportunity egalitarian perspective (Roemer, 1998). In a setting in which both individual incomes and predetermined circumstances are variable over time, we adopt a norm-based approach to the measurement of inequality, and propose two different benchmark distributions, referring respectively to the ex ante and the ex post versions of equality of opportunity. We first aggregate over time, thereby characterizing measures of inter-temporal individual inequality of opportunity, and then aggregate the individual measures into a societal measure. Our individual measure results to be a weighted average of individuals’ opportunity gap experienced in each period. Our aggregate measure is an average of a concave transformation of the individual inter-temporal opportunity gap and can be interpreted as an inter-temporal inequality of opportunity index. We apply our framework to evaluate the Korean distribution of income from an inter-temporal and opportunity egalitarian perspective.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"271 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116548777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study quantitatively how uncertainty in expected stock return predictability affects life-cycle portfolio choice and wealth accumulation in the presence of undiversifiable labor income risk. Households filter information about future expected returns from observed predictors and realized stock returns. Therefore, optimal portfolio choice does not only depend on financial wealth and age, as in more traditional life-cycle models. Counterfactuals demonstrate the magnitude of portfolio demand changes that depend on perceptions about underlying expected returns. On average, life-cycle asset allocation becomes more conservative than models with either i.i.d. stock returns, or clearer signals about expected stock returns.
{"title":"Life-Cycle Portfolio Choice with Imperfect Predictors","authors":"Alexander Michaelides, Yu-xin Zhang","doi":"10.2139/ssrn.3450344","DOIUrl":"https://doi.org/10.2139/ssrn.3450344","url":null,"abstract":"We study quantitatively how uncertainty in expected stock return predictability affects life-cycle portfolio choice and wealth accumulation in the presence of undiversifiable labor income risk. Households filter information about future expected returns from observed predictors and realized stock returns. Therefore, optimal portfolio choice does not only depend on financial wealth and age, as in more traditional life-cycle models. Counterfactuals demonstrate the magnitude of portfolio demand changes that depend on perceptions about underlying expected returns. On average, life-cycle asset allocation becomes more conservative than models with either i.i.d. stock returns, or clearer signals about expected stock returns.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124279724","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pension reforms in OECD countries endow individuals with more responsibility for their financial security in retirement, raising concerns about their ability to select appropriate pension arrangements and save adequately. This paper analyses the interaction between a present-biased individual and a profit-maximising financial provider in order to examine the properties of exploitative savings contracts and the impact of common policy interventions. Using a tractable theoretical model, I find that naive present-biased agents are offered contracts that are `inefficiently cheap' (low-yield, low-fee) when the income effect of an interest rate change dominates in the agent's utility function, and `inefficiently expensive' (high-yield, high-fee) otherwise. Subsequently, I embed the interaction with a pension provider in a numerical life-cycle framework with hyperbolic discounting. Under the benchmark calibration of the model, the savings contract prevailing in market equilibrium is Pareto inefficient and reduces the agent's pension wealth by 10%, lowering expected annual consumption in retirement by 3%. This generates a loss of consumer welfare corresponding to 0.18% of annual consumption.
{"title":"Exploitative Contracting in a Life Cycle Savings Model","authors":"T. Sulka","doi":"10.2139/ssrn.3507413","DOIUrl":"https://doi.org/10.2139/ssrn.3507413","url":null,"abstract":"Pension reforms in OECD countries endow individuals with more responsibility for their financial security in retirement, raising concerns about their ability to select appropriate pension arrangements and save adequately. This paper analyses the interaction between a present-biased individual and a profit-maximising financial provider in order to examine the properties of exploitative savings contracts and the impact of common policy interventions. Using a tractable theoretical model, I find that naive present-biased agents are offered contracts that are `inefficiently cheap' (low-yield, low-fee) when the income effect of an interest rate change dominates in the agent's utility function, and `inefficiently expensive' (high-yield, high-fee) otherwise. Subsequently, I embed the interaction with a pension provider in a numerical life-cycle framework with hyperbolic discounting. Under the benchmark calibration of the model, the savings contract prevailing in market equilibrium is Pareto inefficient and reduces the agent's pension wealth by 10%, lowering expected annual consumption in retirement by 3%. This generates a loss of consumer welfare corresponding to 0.18% of annual consumption.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116281456","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
How do labor market and health outcomes interact over the life cycle in a country characterized by a large informal sector and strong inequalities? To quantify the effects of bad health on labor market trajectories, wealth, and consumption, we develop a life-cycle heterogeneous agents model with a formal and an informal sector. We estimate our model using data from the National Income Dynamics Study, the first nationally representative panel study in South Africa. We run counterfactual experiments and show that health shocks have an important impact on wealth and consumption. The channel through which these shocks propagate strongly depends on the job status of individuals at the time of the shock. For formal workers, bad health reduces labor efficiency, which translates into lower earnings. For informal workers and the non-employed, the shock lowers the job finding rate and increases job separation into non-employment, which results in a surge in non-employment spells. As bad health spells persist more for non-employed than for employed individuals, the interaction between labor market risks and health risks generates a vicious circle.
{"title":"Health, Wealth, and Informality over the Life Cycle","authors":"Julien Albertini, Xavier Fairise, Anthony Terriau","doi":"10.2139/ssrn.3523170","DOIUrl":"https://doi.org/10.2139/ssrn.3523170","url":null,"abstract":"How do labor market and health outcomes interact over the life cycle in a country characterized by a large informal sector and strong inequalities? To quantify the effects of bad health on labor market trajectories, wealth, and consumption, we develop a life-cycle heterogeneous agents model with a formal and an informal sector. We estimate our model using data from the National Income Dynamics Study, the first nationally representative panel study in South Africa. We run counterfactual experiments and show that health shocks have an important impact on wealth and consumption. The channel through which these shocks propagate strongly depends on the job status of individuals at the time of the shock. For formal workers, bad health reduces labor efficiency, which translates into lower earnings. For informal workers and the non-employed, the shock lowers the job finding rate and increases job separation into non-employment, which results in a surge in non-employment spells. As bad health spells persist more for non-employed than for employed individuals, the interaction between labor market risks and health risks generates a vicious circle.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"186 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114420746","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-10-25DOI: 10.1108/rbf-10-2019-0148
H. Shefrin
PurposeThere was unfinished business to address in the version of the planner–doer model developed in Thaler and Shefrin (1981). The unfinished business involved identifying and modeling the crucial roles played by temptation and mental accounting in pensions and savings behavior. The present paper has two objectives.Design/methodology/approachThe first objective is to describe the key lessons learned in transitioning from the model in Thaler and Shefrin (1981) to the model in Shefrin and Thaler (1988), a transition which addressed some of the unfinished business. The second objective is to describe as yet unfinished business associated with developing a multicommodity, intertemporal version of the planner–doer framework, incorporating the concepts of temptation and mental accounting, to replace the neoclassical theory of the consumer.FindingsDoing so will provide a theoretical foundation for nudges related to household budgeting, spending, saving, borrowing and investing.Originality/valueThis paper presents the first behavioral theory of the consumer, focusing on the manner in which consumers actually make decisions about budgeting, spending. borrowing and saving. The approach in the paper can be viewed as a behavioral counterpart to the neoclassical theory of the consumer. In contrast to the neoclassical approach, which assumes that consumers set and follow utility maximizing budgets, the empirical evidence indicates that only a small minority of consumers describe themselves as setting and following budgets. The behavioral theory presented here focuses on the heuristic nature of consumers' actual budgeting processes and extends the approach described in Thaler and Shefrin's 1981 seminal paper on self-control. The core of the present paper is a working paper which Shefrin and Thaler began in 1980, and as such represents unfinished business from that time. The first part of this paper describes earlier unfinished business from the 1981 framework that the authors subsequently addressed as they developed the behavioral life cycle hypothesis during the 1980s.
{"title":"Unfinished Business: A Multicommodity Intertemporal Planner-Doer Framework","authors":"H. Shefrin","doi":"10.1108/rbf-10-2019-0148","DOIUrl":"https://doi.org/10.1108/rbf-10-2019-0148","url":null,"abstract":"PurposeThere was unfinished business to address in the version of the planner–doer model developed in Thaler and Shefrin (1981). The unfinished business involved identifying and modeling the crucial roles played by temptation and mental accounting in pensions and savings behavior. The present paper has two objectives.Design/methodology/approachThe first objective is to describe the key lessons learned in transitioning from the model in Thaler and Shefrin (1981) to the model in Shefrin and Thaler (1988), a transition which addressed some of the unfinished business. The second objective is to describe as yet unfinished business associated with developing a multicommodity, intertemporal version of the planner–doer framework, incorporating the concepts of temptation and mental accounting, to replace the neoclassical theory of the consumer.FindingsDoing so will provide a theoretical foundation for nudges related to household budgeting, spending, saving, borrowing and investing.Originality/valueThis paper presents the first behavioral theory of the consumer, focusing on the manner in which consumers actually make decisions about budgeting, spending. borrowing and saving. The approach in the paper can be viewed as a behavioral counterpart to the neoclassical theory of the consumer. In contrast to the neoclassical approach, which assumes that consumers set and follow utility maximizing budgets, the empirical evidence indicates that only a small minority of consumers describe themselves as setting and following budgets. The behavioral theory presented here focuses on the heuristic nature of consumers' actual budgeting processes and extends the approach described in Thaler and Shefrin's 1981 seminal paper on self-control. The core of the present paper is a working paper which Shefrin and Thaler began in 1980, and as such represents unfinished business from that time. The first part of this paper describes earlier unfinished business from the 1981 framework that the authors subsequently addressed as they developed the behavioral life cycle hypothesis during the 1980s.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115532603","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I present a model where competition in the asset management industry has positive and negative effects on fund performance. When funds have increasing (decreasing) returns to scale at the industry level, the flow-performance relation is concave (convex). Active funds outperform their benchmark initially. Competition among funds raises the cost of active management and gradually depletes the profitable opportunities in the aggregate. Eventually, the total surplus declines to zero and the average active manager falls behind the benchmark. Aggregate risk is reduced over time through "closet indexing", until all active funds form a scalable pool of passively invested capital.
{"title":"The Life Cycle of Investment Management When 'Today's Alpha is Tomorrow's Beta'","authors":"G. Magkotsios","doi":"10.2139/ssrn.3206237","DOIUrl":"https://doi.org/10.2139/ssrn.3206237","url":null,"abstract":"I present a model where competition in the asset management industry has positive and negative effects on fund performance. When funds have increasing (decreasing) returns to scale at the industry level, the flow-performance relation is concave (convex). Active funds outperform their benchmark initially. Competition among funds raises the cost of active management and gradually depletes the profitable opportunities in the aggregate. Eventually, the total surplus declines to zero and the average active manager falls behind the benchmark. Aggregate risk is reduced over time through \"closet indexing\", until all active funds form a scalable pool of passively invested capital.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129694172","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Measures of income concentration?such as the share of income received by the highest income families?may be biased by pro-cyclical volatility in annual income. Permanent income, though, can smooth away such volatility and sort families by their usual economic resources. Here, we demonstrate this bias using rolling 3-year panels of IRS tax records from 1997 to 2013 as a proxy for permanent income. For example, one measure of 2012 income concentration?the share of income received by the top 0.1 percent?falls from 11.3 percent to 8.9 percent when families are organized by permanent income instead of annual income. However, the growth in income concentration cannot be explained by this volatility, as growth rates are comparable in the permanent income and annual income groupings during our sample period. Further, the probability of remaining in the highest income groups, while relatively low at the very top of the distribution, increased slightly during our sample period, suggesting that top incomes have become less volatile in this dimension. These results are confirmed using household income data measured in the Survey of Consumer Finances (SCF)?a household survey with a large oversample of high-income households and a unique measure of permanent income.
{"title":"Top Income Concentration and Volatility","authors":"","doi":"10.17016/feds.2018.010","DOIUrl":"https://doi.org/10.17016/feds.2018.010","url":null,"abstract":"Measures of income concentration?such as the share of income received by the highest income families?may be biased by pro-cyclical volatility in annual income. Permanent income, though, can smooth away such volatility and sort families by their usual economic resources. Here, we demonstrate this bias using rolling 3-year panels of IRS tax records from 1997 to 2013 as a proxy for permanent income. For example, one measure of 2012 income concentration?the share of income received by the top 0.1 percent?falls from 11.3 percent to 8.9 percent when families are organized by permanent income instead of annual income. However, the growth in income concentration cannot be explained by this volatility, as growth rates are comparable in the permanent income and annual income groupings during our sample period. Further, the probability of remaining in the highest income groups, while relatively low at the very top of the distribution, increased slightly during our sample period, suggesting that top incomes have become less volatile in this dimension. These results are confirmed using household income data measured in the Survey of Consumer Finances (SCF)?a household survey with a large oversample of high-income households and a unique measure of permanent income.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122728780","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper looks into the impacts of the progress of aging on the financial markets from the perspective of changes in households' asset and liability portfolios. To identify these impacts empirically, this paper sets up a hypothesis and conducts an analysis through a macroeconomic panel model using economic indicators from OECD member countries, and through a microeconomic panel model using Korean labor and income panel data. The results of empirical analysis show that, as the level of population aging increases, the household savings ratio and the share of households' investment in risky assets decline. The financial debt-to-financial assets ratio is found to fall as the level of aging rises, but this fall was statistically insignificant. In the microeconomic panel model, considering the cohort effect, the baby-boomer generation that experienced a period of high economic growth is found to have been able to build up more real and financial assets than the generations before them. In addition, the elderly are found to maintain their financial assets to some extent, rather than reducing them, owing mainly to the precautionary savings and bequest motives, while their real assets show modest downward movements. However, it is estimated that high-income elderly people, belonging to the fifth income quintile group, will reduce their real assets to repay their debts, hold financial assets for retirement savings, and so on. This paper is significant in that it verifies not only the impacts of aging on households' asset and liability structures but also the impacts of factors such as the retirement of baby-boomers in Korea through microeconomic panel data. This is expected to have implications for us in coming up with policy solutions related to aging.
{"title":"인구고령화가 가계의 자산 및 부채에 미치는 영향 (Impacts of Aging on Households Assets and Liabilities)","authors":"Se-hyung Jo, Yong-Min Lee, Kim JeongHoon","doi":"10.2139/SSRN.3055579","DOIUrl":"https://doi.org/10.2139/SSRN.3055579","url":null,"abstract":"This paper looks into the impacts of the progress of aging on the financial markets from the perspective of changes in households' asset and liability portfolios. To identify these impacts empirically, this paper sets up a hypothesis and conducts an analysis through a macroeconomic panel model using economic indicators from OECD member countries, and through a microeconomic panel model using Korean labor and income panel data. The results of empirical analysis show that, as the level of population aging increases, the household savings ratio and the share of households' investment in risky assets decline. The financial debt-to-financial assets ratio is found to fall as the level of aging rises, but this fall was statistically insignificant. In the microeconomic panel model, considering the cohort effect, the baby-boomer generation that experienced a period of high economic growth is found to have been able to build up more real and financial assets than the generations before them. In addition, the elderly are found to maintain their financial assets to some extent, rather than reducing them, owing mainly to the precautionary savings and bequest motives, while their real assets show modest downward movements. However, it is estimated that high-income elderly people, belonging to the fifth income quintile group, will reduce their real assets to repay their debts, hold financial assets for retirement savings, and so on. This paper is significant in that it verifies not only the impacts of aging on households' asset and liability structures but also the impacts of factors such as the retirement of baby-boomers in Korea through microeconomic panel data. This is expected to have implications for us in coming up with policy solutions related to aging.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115589326","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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