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on Macroeconomics |
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Issue of 2005‒08‒20
seven papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Barry Bosworth (The Brookings Institution) |
| Abstract: | This paper provides an examination of the decline in the household saving rate over the past two decades from both the macroeconomic and microeconomic perspectives. Between 1980-84 and 2000-04 private saving fell more than 8 percentage points of U.S. GDP. At the aggregate level, about 40 percent of the fall in the household saving rate occurred within contractual retirement accounts, that is, within employer-sponsored and individual retirement plans. Moreover, much of the drop in discretionary saving occurred before the sharp rise in equity and home values in the late 1990s. The paper examines the potential scope of a number of other explanations for the fall in aggregate saving, such as the drop in inflation, increased capital gains on wealth, and alternative treatments of consumer durables as investment. Lower rates of inflation do emerge as a possible cause of the drop in measured saving, but the other factors do not seem consistent with the observed timing of the decline. The microeconomic section explores the feasibility of using information from successive Surveys of Consumer Finances (SCF) to follow the wealth accumulation of specific age cohorts over the period of most dramatic change in aggregate saving. For many components of wealth, the surveys are very similar to the corresponding aggregates of the flow of funds accounts (FFAs), but there are important discrepancies for corporate equities that become particularly large for the 2001 survey. The discrepancies in the nominal wealth are magnified when the two estimates are adjusted for capital gains, yielding substantially different estimates of household saving. The paper reports on some efforts to benchmark the SCF to the FFAs, using the distributional information of the SCF to provide an added dimension to the FFA data. The resulting microeconomic data indicate a widespread drop in saving that cannot be associated with any specific group of households. |
| Keywords: | household, saving, retirement, inflation |
| JEL: | E2 J26 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-26&r=mac |
| By: | Andrew Eschtruth (Center for Retirement Research at Boston College); Robert Triest (Center for Retirement Research at Boston College) |
| Abstract: | Saving is a critical component of both retirement security for individuals and the long-term growth of the nation’s economy. Current trends in Social Security, 401(k) plans, and personal saving suggest that individuals will need to save more to ensure that they can enjoy a comfortable retirement. The federal government can also contribute to the nation’s saving by reducing or eliminating its budget deficit. Increased saving by either individuals or the government, of course, means less consumption today. But, by providing more money for investment, additional saving boosts productivity and long-term economic growth. Currently, policymakers are discussing possible changes to Social Security that could have significant implications for both the retirement security of today’s workers and for national saving. This Just the Facts examines how various Social Security reforms could affect saving. |
| Keywords: | saving, investment, social security reform |
| JEL: | E21 D91 H5 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:crr:jusfac:jtf_18&r=mac |
| By: | Partha Sen (Delhi School of Economics) |
| Abstract: | We analyse debt policy in a two-period, two-sector overlapping generations model with Leontief technologies. We find that debt, issued to transfer resources to the initially old, could be welfare improving in the new steady state for an economy which satisfies the usual conditions for dynamic efficiency viz. the rate of interest is at least as great as the population growth rate. Out of steady state, the only potential losers are the recipients of the transfer. This could happen if the interest rate were to fall sufficiently to offset the effect of the transfer. From generation one onwards everyone becomes better off (under reasonable asumptions). Contrast this with a one-sector model where the definite gainers are those who are alive on date one. |
| Keywords: | Government Debt, Overlapping Generations,Two-Sector Models,Dynamic Efficiency. |
| JEL: | E2 E6 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:137&r=mac |
| By: | Barry P. Bosworth (The Brookings Institution); Ralph C. Bryant (The Brookings Institution); Gary Burtless (The Brookings Institution) |
| Abstract: | All major industrial countries will experience significant population aging over the next several decades. In both academic circles and the business press it is widely believed that population aging will have important effects on financial markets because of its expected impact on saving rates and the demand for investment funds. This paper reviews the literature on the macroeconomic and asset market effects of population aging, focusing on four related issues: (a) The impact of population age structure on aggregate household saving; (b) The effect of population aging on investment demand; (c) Evidence on the influence of population age structure on financial market asset prices and returns; and (d) Effects of globalization on our interpretation of the impact of demographic change. |
| Keywords: | aging, saving, investment |
| JEL: | E21 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-23&r=mac |
| By: | Mauricio Soto (Center for Retirement Research at Boston College) |
| Abstract: | The fact that American households have debt is not a surprise: credit cards finance our purchases, car loans pay for our wheels, student loans help us with tuitions, and mortgages buy our homes. Yet the size of the debt can seem shocking. The aggregate burden runs to nearly $10 trillion, nearly twice what it was in 1992, even after adjusting for inflation. Today, household debt is equivalent to more than 80 percent of the nation’s economy, up from about 60 percent in the early 1990s (see Figure 1). Filings for bankruptcy have also soared. In 1991, 6 out of every 1,000 adults filed for bankruptcy. This rate climbed to 9 in 2001. Given the potential of debt to undermine the retirement security of an aging population, this Just the Facts examines trends in the debt burden for older workers over the past decade and assesses how vulnerable baby boomers may be in the future. Households aged 50 to 62 represent about 20 percent of American households and hold about a quarter of the total debt. About 11 percent of them have declared bankruptcy at some point in their lives. As a result, some analysts have questioned whether baby boomers will have a comfortable retirement, and whether they will be able to pay back their obligations. Are future retirees going to be in trouble? Important measures of financial vulnerability suggest that the growth of debt might not be that worrisome. The combination of extraordinary asset growth and historically low interest rates allowed households to increase their debt relatively painlessly: their net worth grew significantly, and the portion of income used to pay for debt did not increase. This is not to say that baby boomers might not encounter a few bumps in the road or that some groups might not be vulnerable. But baby boomers as a group do not appear to have an immediate debt crisis. |
| Keywords: | debt, baby boomers, bankruptcy |
| JEL: | D91 E21 D31 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:crr:jusfac:jtf_15&r=mac |
| By: | Richard W. Johnson (Urban Institute); Rudolph G. Penner (Urban Institute) |
| Abstract: | Retirement security depends on both the income of the aged and their consumption needs. Several recent studies project that the Baby Boomers, who were born between 1946 and 1964 and are now approaching traditional retirement ages, will on average receive more income in later life than earlier generations of older Americans. But increases over time in consumption needs might offset these income gains. In particular, rising health care costs may threaten the Baby Boomers’ retirement security. This brief projects future income and out-of-pocket health care spending at older ages. If current policies continue, income after taxes and health care spending for the typical older married couple will be no higher in 2030 than it was in 2000 — despite 30 years of productivity growth. The increased health care burden will be particularly painful for those at the lower end of the income distribution who do not qualify for Medicaid. |
| Keywords: | baby boomers, retirement, health care |
| JEL: | E21 D31 J14 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib23&r=mac |
| By: | Alicia H. Munnell (Center for Retirement Research at Boston College); Steven A. Sass (Center for Retirement Research at Boston College); Mauricio Soto (Center for Retirement Research at Boston College) |
| Abstract: | The same issue keeps reappearing. How to deal with the risk associated with equity investments when evaluating the financial health of retirement systems? Some experts argue that retirement plans holding equities can make smaller funding contributions than those invested primarily in bonds. After all, stocks yield 7 percent, after inflation, and bonds only 3 percent. Nonsense, say others. The higher expected returns on equities reflect their greater risk. Any serious financial evaluation of retirement arrangements must “risk-adjust” these returns. After accounting for risk, the contribution needed today to fund future pension obligations is the same regardless of whether the fund is invested in equities or bonds. Is it possible to reconcile these two views? How should individuals, governments, and employers account for the expected additional returns from equity investment in pension funds? How should they account for the additional risk? Finally, and perhaps most importantly, how does this relate to the debate about creating private accounts with equity investments for Social Security? To sort out these difficult questions, this brief does three things. First, it describes how equities have performed over the last 75 years. Second, it explains how economists, accountants, and actuaries handle the high returns/high risks associated with equities in the real world. Finally, it explores the implications of the risk discussion for evaluating Social Security reform proposals. The conclusion is that the treatment of the high returns/high risks associated with equity investment depends on the extent to which the entity can manage the risk and the purpose of the calculation. In the case of Social Security reform proposals, evaluations tht focus solely on the expected return to equities, without adjusting for risk, overstate the contribution of private accounts to retirement income security. |
| Keywords: | investment, equity, stocks, bonds, retirement, risk |
| JEL: | E22 D91 H55 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib27&r=mac |