Ageing and Financial Markets

THE IMPLICATIONS OF AGING FOR THE STRUCTURE AND STABILITY OF FINANCIAL MARKETS
Jane D’Arista

Analysts have become increasingly concerned about how anticipated demographic changes will affect financial markets. There is general agreement that the share of world population over 65 will rise as the current century progresses. Reasoning out of the life cycle theory of saving, it is assumed that saving rates will tend to decline. One study concludes that the expected pattern of dissaving could lead to balance of payments problems in countries where there is a higher percentage of retirees than in others, and that there will be a shift in the pattern of ownership of financial claims from OECD to emerging market economies as the residents of OECD countries age more rapidly over the next several decades (Davis 2006). Meanwhile, some consequences of demographic changes are already evident – in particular, the increased presence of institutional investors such as pension and mutual funds – and the purpose of this paper is to describe how that development has altered the structure and functions of national and international markets in ways that have important implications for financial stability and the conduct of monetary policy.