Ageing and Financial Stability

  • E. Philip Davis
Conference paper


This article reviews some of the potential pitfalls for systemic financial stability that may arise from the process of population ageing in coming decades. Although the issues are of global relevance, they will most directly affect OECD countries, such as those in the EU. We draw on the extant theoretical and empirical literature on ageing and financial instability, including projections of the macroeconomic effects of ageing and experience of recent financial crises. Our focus is largely on the forms of widespread financial instability that may affect the macroeconomy, in line with the following definition of systemic risk “a sequence of events entailing heightened risk of a financial crisis, where a financial crisis is seen in turn as ‘a major and contagious collapse of the financial system, entailing inability to provide payment services or to allocate funds for investment”1.


Asset Price Mutual Fund Institutional Investor Credit Risk Systemic Risk 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Abel, A. B. 2001. Will Bequests Attenuate the Predicted Meltdown in Stock Prices when Baby Boomers Retire?. NBER Working Paper No. 8131.Google Scholar
  2. Allen, F. and D. Gale. 1999. Bubbles, Crises and Policy, Oxford Review of Economic Policy, 15/3, pp. 9–18.CrossRefGoogle Scholar
  3. Allen, F. and D. Gale. 2000a. Bubbles and Crises, Economic Journal, 110.Google Scholar
  4. Allen, F. and D. Gale. 2000b. Comparing Financial Systems, MIT Press. Google Scholar
  5. Attanasio, O. and A. Brugiavini. 1999. Social Security and Household Saving, mimeo, UCL and University of Venice.Google Scholar
  6. Auerbach, A. J., L. J. Kotlikoff, R. P. Hagemann and G. Nicoletti. 1989. The Economic Dynamics of an Ageing Population: The Case of four OECD Countries, Department of Economics and Statistics Working Paper No. 62, OECD, Paris.CrossRefGoogle Scholar
  7. Barro, R. J. 1974. Are Government Bonds Net Wealth?. Journal of Political Economy, 82, pp. 1095–1117.CrossRefGoogle Scholar
  8. Bikker, J. A. 1996. National Savings, the Current Account and Ageing Populations, a Pension Fund Model. Economic and Financial Modelling. Summer 1996, pp. 1–20.Google Scholar
  9. Bernard, H. and J. Bisignano. 2000. Information, Liquidity and Risk in the International Interbank Market; Implicit Guarantees and Private Credit Market Failure. BIS Working Paper No. 86.Google Scholar
  10. Bishop, G. 1998. Securitising European Saving, Salomon Smith Barney, London, 1st December 1998.Google Scholar
  11. Blanchard, O. J. 1993. The Vanishing Equity Premium. In eds. R. O’Brien, Finance and the International Economy. 7, Oxford University Press.Google Scholar
  12. Blommestein, H. 1998. Ageing induced Capital Flows to Emerging Markets do not solve the OECD’s Basic Pension Problem. In eds. H. Blommestein and N. Funke, Institutional Investors in the New Financial Landscape, OECD, Paris.Google Scholar
  13. Bodie, Z. and R. C. Merton. 1992. Pension Benefit Guarantees in the United States; A Functional Analysis. In ed. R. Schmitt, The Future of Pensions in the United States, University of Pennsylvania Press.Google Scholar
  14. Börsch-Supan, A. 1996. The Impact of Population Ageing on Savings, Investment and Growth in the OECD Area. In Future Global Capital Shortages — Real Threat or Pure Fiction?, OECD, Paris.Google Scholar
  15. Börsch-Supan, A. and P. Tinios. 2000. The Greek Pension System, Strategic Framework for Reform. Presented at the Bank of Greece/Brookings Institute conference on Greece’s Economic Performance and Prospects, Athens, December 7–8, 2000.Google Scholar
  16. Brooks, R. 2000. Life Cycle Portfolio Choices and Asset Market Effects of the Baby Boom, IMF Working Paper WP/00/18.Google Scholar
  17. Buckberg, E. 1996. Institutional Investors and Asset Pricing in Emerging Market. Working Paper WP/96/2, International Monetary Fund.Google Scholar
  18. Chand, S. K. and A. Jaeger. 1996. Ageing Populations and Public Pension Schemes, IMF Occasional Paper No. 147.CrossRefGoogle Scholar
  19. Cremer, H. and P. Pestieau. 2000. Reforming our Pension System; is it a Demographic, Financial or Political Problem?. European Economic Review, 44, pp. 974–983.CrossRefGoogle Scholar
  20. Cutler, D., J. Poterba., L. Sheiner and L. Summers. 1990. An Ageing Society, Opportunity or Challenge?. Brookings Papers on Economic Activity, p. 1.Google Scholar
  21. Dang T. T., P. Anoli and H. Oxley. 2001. Fiscal Implications of Ageing Projections ofAge-Related Spending, OECD Economic Department Working Paper No. 305CrossRefGoogle Scholar
  22. Davis, E. P. 1994. Market Liquidity Risk. In D. Fair and R. Raymond (eds)., The Competitiveness of Financial Institutions and Centres in Europe, Kluwer Academic Publishers.Google Scholar
  23. Davis, E. P. 1995a. Debt, Financial Fragility and Systemic Risk, revised and extended version, Oxford University Press.CrossRefGoogle Scholar
  24. Davis, E. P. 1995b. Financial Fragility in the Early 1990s, what can be learnt from International Experience?. LSE Financial Markets Group Special Paper No. 76.Google Scholar
  25. Davis, E. P. 1995c. Institutional Investors, unstable Financial Markets and Monetary policy. In F. Bruni, D. Fair and R. O’Brien eds., Risk Management in Volatile Financial Markets, Kluwer, Amsterdam.Google Scholar
  26. Davis, E. P. 1995d. Pension Funds, Retirement-Income Security and Capital Markets, an International Perspective, Oxford University Press.Google Scholar
  27. Davis, E. P. 1997. Population Ageing and Retirement income provision in the European Union. In Ed. B. Bosworth and G. Burtless, Ageing Societies, the Global Dimension. Brookings Institution Press, Washington DC, (also Special Paper, Royal Institute of International Affairs, London).Google Scholar
  28. Davis, E. P. 1998. Investment of Mandatory funded Pension Schemes. Discussion Paper No. PI-9908, the Pensions Institute, Birkbeck College.Google Scholar
  29. Davis, E. P. 1999a. Financial Data needs for Macroprudential Surveillance, Lecture Series No 2, Centre for Central Banking Studies, Bank of England.Google Scholar
  30. Davis, E. P. 1999b. Russia/LTCM and Market Liquidity Risk. The Financial Regulator, 4/2, Summer 1999, pp. 23–28.Google Scholar
  31. Davis, E. P. 2001a. Multiple Channels of Intermediation, Corporate Finance and Financial Stability, Working Paper No. 01115, International Monetary Fund.Google Scholar
  32. Davis, E. P. 2001. Portfolio Regulation of Life Insurance Companies and Pension Funds. Working Paper No. PI-0101, The Pensions Institute, Birkbeck College, London.Google Scholar
  33. Davis, E. P. and B. Steil. 2001. Institutional Investors, MIT Press. Google Scholar
  34. Demirguc-Kunt, A. and E. Detragiache. 1998a. The Determinants of Banking Crises in Developing and Developed Countries. IMF Staff Papers, 45, pp. 81–109.Google Scholar
  35. Demirguc-Kunt, A. and E. Detragiache. 1998b. Financial Liberalisation and Financial Fragility. IMF Working Paper No WP/98/83.Google Scholar
  36. Diamond, D. and P. Dybvig P. 1983. Bank runs, Deposit Insurance and Liquidity. Journal of Political Economy, 91, pp. 401–19.CrossRefGoogle Scholar
  37. Disney, R. 1996. Can we Afford to grow older?, MIT Press.Google Scholar
  38. Disney, R. 2000. Declining public pensions in an era of Demographic Ageing: will private pensions fill the gap?. European Economic Review, 44, pp. 957–973.CrossRefGoogle Scholar
  39. Engelhardt, G. and J. M. Poterba. 1991. Demographics and House Prices; The Canadian Evidence. Regional Science and Urban Economics, 21, pp. 539–46.CrossRefGoogle Scholar
  40. Engen, E. M. and A. Lehnert. 2000. Mutual Funds and the US Equity Market. Federal Reserve Bulletin, December 2000, pp. 797–812.Google Scholar
  41. Englund, P. 1999. The Swedish Banking Crisis, Roots and Consequences. Oxford Review of Economic Policy, 15/3, pp. 80–97.CrossRefGoogle Scholar
  42. Erb, C. B., C. R. Harvey and T.E. Viskanta. 1997. Demographics and International Investment, Financial Analysts Journal, 53, July/August, pp. 14–28.CrossRefGoogle Scholar
  43. Feldstein, M. 1974. Social Security, Induced Retirement and Aggregate Capital Formation, Journal of Political Economy, 82, pp. 905–6.CrossRefGoogle Scholar
  44. Feldstein, M. 1977. Social Security and Private Saving; International Evidence in an Extended Life Cycle Model. In M. Feldstein and R. Inman. The Economics of Public Services, International Economic Association.Google Scholar
  45. Feldstein, M. 1995. Social Security and Saving, new Time Series Evidence. NBER Working Paper No. 5054.Google Scholar
  46. Fisher, I. 1933. The Debt Deflation Theory of Great Depressions, Econometrica, pp. 337–57.Google Scholar
  47. Fortune, P. 1998. Mutual Funds, Part II; Fund flows and security returns, New England Economic Review, Jan/Feb, pp. 4–22.Google Scholar
  48. Friedman, M. and A. J. Schwartz. 1963. A Monetary History of the US 1867–1960, NBER, New York.Google Scholar
  49. Froot, K.A., D.S. Scharfstein and J.C. Stein. 1992. Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation. The Journal of Finance, 47, pp. 1461–84.CrossRefGoogle Scholar
  50. Giavazzi, F. and M. Pagano. 1995. Non Keynesian Effects of Fiscal Policy Changes; International Evidence and the Swedish Experience, Working Paper No 1284, CEPR, London.Google Scholar
  51. Gilson, S., J. Kose and L. Lang. 1990. Troubled Debt Restructurings, Journal of Financial Economics, 27, pp. 315–53.CrossRefGoogle Scholar
  52. Glick, R. and A. K. Rose. 1998. Contagion and Trade; why are Currency Crises Regional?, mimeo, Federal Reserve Bank of San Francisco.Google Scholar
  53. Greenspan, A. 1999. Do Efficient Financial Markets Mitigate Financial Crises?. Speech to the Financial Markets Conference of the Federal Reserve Bank of Atlanta, 19 October.Google Scholar
  54. Guttentag, J. M. and R.J. Herring. 1984. Credit Rationing and Financial Disorder. Journal of Finance, 39: pp. 1359–82.CrossRefGoogle Scholar
  55. Hagemann, R. P. and G. Nicoletti. 1989. Ageing Populations; Economic Effects and Implications for Public Finance. Department of Economics and Statistics, Working Paper No. 61, OECD, Paris.CrossRefGoogle Scholar
  56. Hardy, D. C. and C. Pazarbasioglu. 1998. Leading Indicators of Banking Crises; was Asia Different?. IMF Working Paper No. WP/98/91Google Scholar
  57. Hargraves, M., G.J. Schinasi and S. R. Weisbrod. 1993. Asset Price Inflation. In the 1980s: a Flow of Funds Perspective, IMF Working Paper No. WP/93/77.Google Scholar
  58. Heller, P., R. Hemming and P.W. Kohnert. 1986. Ageing and Social Expenditures in Major Industrial Countries 1980–2025, Occasional Paper No. 47, International Monetary Fund, Washington DC.Google Scholar
  59. Hellman, T. F., K. Murdock and J.E. Stiglitz. 2000. Liberalisation, Moral Hazard in Banking and Prudential Regulation; are Capital Requirements Enough?, American Economic Review, 90, pp. 147–165.CrossRefGoogle Scholar
  60. Hendershott, P. H. 1991. Are Real House Prices Likely to Decline by 47%?, Regional Science and Urban Economics, 21, pp. 553–65.CrossRefGoogle Scholar
  61. Herring, J. 1999. Credit Risk and Financial Instability. Oxford, Review of Economic Policy, 15/3, pp. 63–79.CrossRefGoogle Scholar
  62. Horioka, C. Y. 1991. The Determinants of Japans Private Saving Rate, the Impact of the Age Structure of the Population and other Factors. Bank of Japan Economic Studies Quarterly, 42, pp. 237–53.Google Scholar
  63. Hoshi, T., A. Kashyap and D. Scharfstein. 1993. The Choice between Public and Private Debt; an Analysis of Post Deregulation Corporate Financing in Japan. Working Paper No. 4211, National Bureau of Economic Research.Google Scholar
  64. IMF. 1998. World Economic Outlook and International Capital Markets, Interim Assessment December 1998 — Financial Turbulence and the World Economy. IMF, Washington D.C.Google Scholar
  65. IMF. 2000. Macroprudential Indicators of Financial System Soundness. Occasional Paper No. 192, IMF, Washington D.C.Google Scholar
  66. Kaminsky, L. G. and CM. Reinhart. 1999. The Twin Crises; the Causes of Banking and Balance-of-Payments Problems, American Economic Review, 89, pp. 473–500.CrossRefGoogle Scholar
  67. Keeley, M. C. 1990. Deposit Insurance, Risk and Market Power in Banking. American Economic Review, 80: pp. 1138–99.Google Scholar
  68. Kindleberger, C. P. 1978. Manias, Panics and Crashes, A History of Financial Crises, Basic Books, New York.Google Scholar
  69. King, M. A. and L. Dicks Mireaux . 1988. Portfolio Composition and Pension Wealth: an Econometric Study. In eds. Z. Bodie , J.B. Shoven and D.A. Wise, Pensions in the US Economy, University of Chicago Press.Google Scholar
  70. Knight, F. H. 1921. Risk, Uncertainty and Profit, Boston; No. 16 in a Series of Rare Texts in Economics, Republished by the LSE.Google Scholar
  71. Kohl, R. and P. O’Brien. 1998. The Macroeconomics of Ageing, Pensions and Savings; a Survey. Economics Department Working Paper No. 200, OECD, ParisCrossRefGoogle Scholar
  72. Krugman, P. 1991. Financial Crises in the International Economy. In M. Feldstein, ed. The Risk of Economic Crisis, Univ. of Chicago Press.Google Scholar
  73. Leibfritz, W., D. Roseveare, D. Fore, and E. Wurzel. 1996. Ageing Populations, Pension Systems and Government Budgets — how do they Affect Saving?. In: Future Global Capital Shortages — Real Threat or Pure Fiction?, OECD, Paris.Google Scholar
  74. Mankiw, N. G. and D.N. Weil . 1989. The Baby Boom, the Baby Bust and the Housing Market. Regional Science and Urban Economics, 19, pp. 238–258.CrossRefGoogle Scholar
  75. Masson, P. and R.W. Tryon. 1990. Macroeconomic Effects of Projected Population Ageing in Industrial Countries. IMF Staff Papers, 37, pp. 453–485.Google Scholar
  76. Masson, P., T. Bayoumi. and H. Samiei. 1995. International Evidence on the Determinants of Private Saving. IMF Working Paper No. W95/51.Google Scholar
  77. Mayer, C. P. 1999. The Assessment; Financial Instability, Oxford Review of Economic Policy, 15/3, 1–8.CrossRefGoogle Scholar
  78. Miles, D. and B. Patel. 1996. Saving and Wealth Accumulation in Europe, the Outlook into the next Century. Merrill Lynch, Financial Research, 3 June 1996.Google Scholar
  79. Miles, D. K. 1999. Funded and Unfunded Pension Schemes; Risk, Return and Welfare. Mimeo, Imperial College, London.Google Scholar
  80. Minsky, H. P. 1977. A Theory of Systemic Fragility. In: E.I. Altman and A.W. Sametz, ed. Financial Crises, Wiley, New York..Google Scholar
  81. Mishkin, F. S. 1991. Asymmetric Information and Financial Crises: A Historical Perspective, in R.G. Hubbard ed. Financial Markets and Financial Crises, University of Chicago Press, Chicago.Google Scholar
  82. Mitchell, O. S. and Z. Bodie. 2000. A Framework for Analysing and Managing Retirement Risks, Working Paper No. PRC WP 2000–4, Pension Research Council, The Wharton School, University of Pennsylvania.Google Scholar
  83. Munnell, A. H. 1987. The Impact of Public and Private Saving Schemes on Saving and Capital Formation. In: Conjugating Public and Private, the Case of Pensions. International Social Security Association, Studies and Research, 24, pp. 219–36.Google Scholar
  84. Nakagawa, S. 1999. Why has Japans Household Savings Rate Remained High during the 1990s?. Reprinted from Bank of Japan Monthly Bulletin, April 1999Google Scholar
  85. Neuberger, A. 1999. Long Term Savings Flows and the Capital Market, Morgan Stanley Dean Witter Global Pensions Quarterly, January 1999.Google Scholar
  86. Oyama, T. and K. Yoshida. 1999. Does Japan Save too Little or do Other Countries save too much?. Working Paper No. 99–5, Research and Statistics Department, Bank of Japan.Google Scholar
  87. Poterba, J. M. 1998. Population Age Structure and Asset Returns — An Empirical Investigation. NBER Working Paper No. 6774.Google Scholar
  88. Reisen, H. 1998. Warning; Past Pension Fund Performance is no Guarantee for Future Performance. In eds. H. Blommestein and N. Funke, Institutional Investors in the New Financial Landscape, OECD, Paris.Google Scholar
  89. Roseveare, D., W. Leibfritz., D. Fore, and E. Wurzel. 1996. Ageing Populations, Pension Systems and Government Budgets: Simulation for 20 OECD Countries. Economics Department Working Paper No. 168, OECD, Paris.CrossRefGoogle Scholar
  90. Scharfstein, D. S. and J. C. Stein, 1990. Herd Behaviour and Investment, American Economic Review, 80, pp. 465–79.Google Scholar
  91. Schieber, S. J. and J. Shoven. 1994. The Consequences of Population Ageing on Private Pension Fund Saving and Asset Markets. NBER Working Paper No. 4665.Google Scholar
  92. Shafer, J. R. 1986. Managing Crises in the Emerging Financial Landscape, OECD Economic Studies, 8, pp. 56–11.Google Scholar
  93. Stiglitz, J. E. 2000. Capital Market Liberalisation, Economic Growth and Instability, World Development, 28, pp. 1075–1086.CrossRefGoogle Scholar
  94. Trzcinka, C. 1998. The Conflicting Views and Management Practices of Institutional Equity Investing, Financial Markets, Institutions and Instruments, 7, pp. 20–53CrossRefGoogle Scholar
  95. Turner, D., C. Giorno, A. De Serres, A. Vourch and P. Richardson. 1998. The Macroeconomic Implications of Ageing in a Global Context, Economics Department Working Paper No. 193, OECD, Paris.CrossRefGoogle Scholar
  96. Wattenburg, B. 1987. The Birth Dearth, Pharos Books, New York.Google Scholar
  97. World Bank. 1994. Averting the old Age Crisis; Policies to Protect the old and Promote Growth, The World Bank, Washington DC.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • E. Philip Davis

There are no affiliations available

Personalised recommendations