Baby Boom, Asset Market Meltdown and Liquidity Trap

A so-called “asset market meltdown hypothesis” predicts that baby boomers’ large savings will drive asset market booms that will eventually collapse because of the boomers’ large retirement dissavings. As good news to baby boomers, our analysis shows that this meltdown hypothesis is fundamentally flawed; and baby-boom-driven asset market booms may not necessarily collapse. However, bad news is that, in the case where meltdowns are about to happen, forward-looking baby boomers’ attempts to escape them will be futile and may lead the economy into a “liquidity trap”. (JEL E21, E22, E44, G12)