Secular Stagnation? Growth, Asset Returns and Welfare in the Next Decades

Topic & Objectives

Quantification of the effects of demographic change on risky and risk-free asset returns.  

Key Findings

Demographic change will lead to a reduction of returns. Risk-free interest rate decreases by more than risky returns because households invest more strongly in risk-free assets as they become older which increases the price thus decreasing the return.

Policy Implications

Policy debate on how to finance old-age insurance must explicitly take return differentials between risk-free and risky returns into account.