Pensionomics pp 19-49 | Cite as

# Methodical Foundation

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## Keywords

Asset Price Physical Capital Labor Income Pension System Adjustment Cost
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## References

- 1.There is still surprisingly little research in the monetary field; see e.g. Auerbach and Herrmann [2002], Fitoussi [2003] or Davis [2004]. The international perspective is dominated by estimations of demography-driven capital flows like Börsch-Supan et al. [2002], Börsch-Supan et al. [2003], Brooks [2003], Domeij and Floden [2003], Feroli [2003], Börsch-Supan et al. [2005], or Domeij and Floden [2005]. Still, exchange rate effects are hardly assessed. Migration — as the labor market consequence of openness — is discussed, for instance, in Winkelmann and Zimmermann [1992], Alvarado and Creedy [1998], United Nations [2000] or Börsch-Supan [2003]. As indicated in Chap. 1, immigration turns out to be an unlikely cushion for older countries, as it requires substantially large magnitudes to offset the birth-decline; for
*global*aging it can definitely not help.Google Scholar - 3.See Henry [1990] for a detailed history of the neoclassical paradigm.Google Scholar
- 4.See Fama and Miller [1972] and Copeland and Weston [1988] for an extensive discussion of the neoclassical foundation of finance. The interest rates’ linkage to production-based economics is nicely reflected in the fact that the typically notation for them is not “i” but “r” — for
*rental*of physical capital; see Wheelan [2002, p. 121] for an anecdotic illustration.Google Scholar - 6.See Modigliani [1986] for a summary on the life-cycle consumption approaches.Google Scholar
- 7.For more detailed expositions of utility theory see Ingersoll [1987] or Gollier [2001]. Campbell and Viceira [2001a, Chapt. 2] provide an introduction to the utility concept underlying portfolio theory. The seminal work of Ramsey [1928] seems to be the first analysis of the multiperiod consumption problem.Google Scholar
- 9.See Fama [1976], Ingersoll [1987, Chaps. 3 and 4], Copeland and Weston [1988, Chap. 4], or Constantinides and Malliaris [1995] for analytical summaries of portfolio theory. Markowitz [1999] gives a historical overview.Google Scholar
- 10.See Campbell and Viceira [2001
*a*, Chap. 2]. It is noteworthy that also the macro-economic theories of income and consumption address the aspect of risk aversion with the idea of precautionary savings as proposed by Leland [1968], Sandmo [1970], and Kimball [1990].Google Scholar - 11.Merton [1990] or Duffie [2001] provide general treatments of portfolio choice in continuous time. Focussing on the aspect of asset allocation with predictability of returns Campbell and Viceira [1999, 2001
*b*], Barberis [2000], Campbell, Chan and Viceira [2003]; Campbell, Viceira and White [2003] or Campbell et al. [2004] exploit the vector-auto-regression procedure and develop several approximate solutions, since the exact analytical ones are usually not obtainable. Campbell and Viceira [2001*a*] is a textbook treatment of this.Google Scholar - 13.Fixed commitments like housing are often ignored, even though they represent a significant portion of wealth and deliver an important consumption part. Cocco [2005] is one of the few attempts to include it in the life-cycle portfolio model. Corresponding to Fig. 2.1’s focus on only two macroeconomic input factors, namely physical capital and human labor, land as a potential third one as well as real property investments will be ignored in this framework.Google Scholar
- 15.See Campbell [2000] or Campbell [2003
*a*] for summaries of the SDF approach. Ingersoll [1987] and Duffie [2001] provide textbook treatments. Cochrane [2001] restates the whole consumption-based asset pricing theory within this framework and provides the relation to the econometrics, which are scrutinized on in Campbell et al. [1997].Google Scholar - 16.See for instance Rubinstein [1974], Constantinides [1980, 1982], or Scheinkman [1989].Google Scholar
- 17.The Lucas [1978] landmark contribution also highlights the concept of rational expectations in the spirit of Muth [1961] and the proposition of efficiency in the capital market of Fama [1970
*a*].Google Scholar - 18.See Kocherlakota [1996], Constantinides [2002], Jäkel [2002], Mehra [2003], or Campbell [2003
*b*] for summaries on the empirical challenges, the Equity Premium Puzzle, and proposed solutions.Google Scholar - 20.See Lettau [2003] or Cochrane [2005].Google Scholar
- 21.See Dixit and Pindyck [1994] for a survey and textbook treatment of the literature on irreversible investments and its relation to the q-Theory.Google Scholar
- 22.See Cochrane [2005] for a recent survey of models at these intersections between macroeconomics and finance.Google Scholar
- 23.Admittedly, the exact numbers vary for different countries between 60%–40% to 70%–30%. Nevertheless, the expected stability of the functional distribution of income to human labor and physical capital will be a key insight for the framework; see Kaldor [1963], Valdés [1999, p. 5], or Barro and Sala-i Martin [2004, p. 12].Google Scholar
- 24.von Hayek [1941] raised this question concerning the consistency of Fisher’s [1930] view and Clark’s [1899] theory of production, which underlies the equilibrium notion.Google Scholar
- 26.For an extensive textbook treatment of growth theory see Jones [1997], Aghion and Howitt [1998], Valdés [1999], or Barro and Sala-i Martin [2004].Google Scholar
- 27.Interestingly, Malthus [1815] was one of the first advocates of this so called
*law of diminishing marginal productivity*.Google Scholar - 33.For a discussion of other reallocation mechanisms like health care see Lee [1994
*a, b*].Google Scholar - 34.Important contributions include Gale [1973], Cass and Shell [1980], Balasko and Shell [1980, 1981
*a,b*] and Weil [1989*a*].Google Scholar - 35.See Shiller [2003
*a*] or Börsch-Supan and Wilke [2003] for some historical remarks on the German PAYGO system.Google Scholar - 36.See Börsch-Supan [2001] and Bubb and Zimmermann [2002, Chap. 6].Google Scholar
- 37.See, for instance, the collections of Feldstein [1988], Feldstein and Siebert [2002], Feldstein and Liebman [2002], Campbell and Feldstein [2004] and many more contributions. Textbook treatments of public finance aspects and their relations to economics are given in Myles [1995], Cullis and Jones [1998], or Rosen [2002].Google Scholar

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