Ageing, property prices and money demand

When the baby boomers joined the workforce and started saving, money supply and property prices entered a rising trajectory. We conclude that demography was the long-run driver of this process, basing our argument on data from 22 advanced economies for the 1950-2010 period. According to our lifecycle model, large working-age populations saved for their old age by investing in property and broad money instruments, such as deposits. In the past, savings activity by baby boomers drove up property prices and also increased demand for money. As baby boomers retire, these dynamics will go into reverse. Falling demand for savings, including money and deposits, might hinder banks in their efforts to collect deposits and thereby bring down excessively high loan-to-deposit ratios. Our model also confirms that monetary stability contributes to long-run property price stability.

JEL classification: E31, E41, G12, J11

Keywords: Ageing, property prices, money demand