Asset Demand and Real Interest Rates / Paul Beaudry, Katya Kartashova, Césaire Meh.

Format:

Book

Author/Creator:

Beaudry, Paul.

Contributor:

National Bureau of Economic Research.

Kartashova, Katya.

Meh, Césaire.

Series:

Working Paper Series (National Bureau of Economic Research) no. w32248.

NBER working paper series no. w32248

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2024.

Summary:

Understanding factors that drive asset demand is central to explaining movements in long-term real interest rates. In this paper, we begin by documenting that much of the increase in the demand for assets in the US in the 30 years prior to Covid represented greater desire to hold assets by households of given age and income levels. For example, if we focus on the 55-64 age group, its wealth-to-income ratio increased by 45-55%, depending on whether housing is included or not. We then develop a model of asset demands which combines retirement motives and inter-temporal substitution motives to quantitatively explore different factors that may have contributed to such an increase. Our findings suggest that decreasing interest rates likely led to a substantial increase in demand for retirement wealth. We also explore some of the across group heterogeneity and show how social security may explain why the lowest income groups did not follow the general trend. Finally, we discuss macroeconomic implications of long-run asset demands that are a decreasing function of interest rates.

Notes:

Print version record

March 2024.