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Zoomers and Boomers: Asset Prices and Intergenerational Inequality

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  • Leland Farmer
  • Roger Farmer

Abstract

We construct a perpetual youth DSGE model with aggregate uncertainty in which there are dynamically complete markets and agents have Epstein-Zin preferences. We prove that, when endowments have a realistic hump-shaped age-profile, our model has three steady-state equilibria. One of these equilibria is dynamically inefficient and displays real price indeterminacy. We estimate the parameters of our model and we find that a fourth-order approximation around the indeterminate steady-state provides the best fit to U.S. data. Our work interprets the large and persistent generational inequality that has been observed in western economies over the past century as the result of uninsurable income shocks to birth cohorts.

Suggested Citation

  • Leland Farmer & Roger Farmer, 2022. "Zoomers and Boomers: Asset Prices and Intergenerational Inequality," NBER Working Papers 30419, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30419
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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