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The Implications of Aging for the Structure and Stability of Financial Markets

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  • Jane D'Arista

Abstract

Aging populations have altered saving and investment patterns in many developed and emerging market economies. The structural changes that have occurred have important implications for financial stability and for the conduct of monetary policy. As assets and borrowing shifted from banks to pension funds and other institutional investors, the market-based systems that replaced bank-based systems became more procyclical and more vulnerable to systemic risk. In addition, banks’ receding share of financial assets undermined their role in channeling monetary policy initiatives and thus eroded central banks’ ability to counter excessive credit growth and contraction, defuse asset bubbles and act as effective lenders-of-last-resort in crises. This paper offers policy choices and proposals to address the adverse outcomes of these structural and institutional developments that are likely to intensify under the ongoing pressure of demographic change.

Suggested Citation

  • Jane D'Arista, 2008. "The Implications of Aging for the Structure and Stability of Financial Markets," Working Papers wp163, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp163
    as

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    References listed on IDEAS

    as
    1. Mr. Jorge A Chan-Lau, 2004. "Pension Funds and Emerging Markets," IMF Working Papers 2004/181, International Monetary Fund.
    2. Alan Greenspan, 1996. "Opening remarks," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 1-5.
    3. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    4. E Philip Davis, 2006. "How Will Ageing Affect the Structure of Financial Markets?," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Anna Park & Daniel Rees (ed.),Demography and Financial Markets, Reserve Bank of Australia.
    5. Davis, E. Philip, 2003. "Institutional investors, financial market efficiency, and financial stability," EIB Papers 4/2003, European Investment Bank, Economics Department.
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    Keywords

    aging; banks; pension funds; financial stability; monetary policy;
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