Severe recessions affect age groups differently: The old suffer a more adverse economic impact than the young.
With a model in which asset prices adjust in response to declines in economic output, researchers link income, consumption and savings dynamics to asset price dynamics, and find that the differential recession impact is due to relative effects on income and assets.
A key determinant: The extent to which asset prices drop, relative labor earnings decline and output slumps. If highly risk averse, the middle-aged will sell wealth to maintain lifestyles. Asset prices will drop, benefiting the young and hurting the old.
Douglas Clement was a managing editor at the Minneapolis Fed, where he wrote about research conducted by economists and other scholars associated with the Minneapolis Fed and interviewed prominent economists.