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Intergenerational Sharing of Unhedgeable Inflation Risk

Author

Listed:
  • Damiaan Chen
  • Roel Beetsma
  • Sweder van Wijnbergen
Abstract
We explore how members of a collective pension scheme can share inflation risks in the absence of suitable ï¬ nancial market instruments. Using intergenerational risk sharing arrangements, risks can be allocated better across the various participants of a collective pension scheme than would be the case in a strictly individual- or cohort-based pension scheme, as these can only lay off risks via existing ï¬ nancial market instruments. Hence, intergenerational sharing of these risks enhances welfare. In view of the sizes of their funded pension sectors, this would be particularly beneï¬ cial for the Netherlands and the U.K.

Suggested Citation

  • Damiaan Chen & Roel Beetsma & Sweder van Wijnbergen, 2022. "Intergenerational Sharing of Unhedgeable Inflation Risk," Working Papers 758, DNB.
    • Handle: RePEc:dnb:dnbwpp:758
    as

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    File URL: https://www.dnb.nl/media/hanh3zmf/working_paper_no-758.pdf
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    References listed on IDEAS

    as
    1. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "International Risk Sharing and the Transmission of Productivity Shocks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 443-473.
    2. Romp, Ward & Beetsma, Roel, 2020. "Sustainability of pension systems with voluntary participation," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 125-140.
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    4. Beetsma, Roel M.W.J. & Romp, Ward E. & Vos, Siert J., 2012. "Voluntary participation and intergenerational risk sharing in a funded pension system," European Economic Review, Elsevier, vol. 56(6), pages 1310-1324.
    5. Carroll, Christopher D., 2006. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," Economics Letters, Elsevier, vol. 91(3), pages 312-320, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pension funds; intergenerational risk sharing; unhedgeable inflation risk; incom- plete markets; welfare loss;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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