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Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States

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  • Steven Lugauer

    (University of Notre Dame)

Abstract

I exploit the variation in demographic change across the United States to estimate the relationship between the age distribution in the population and the magnitude of cyclical output volatility. According to panel regression estimates, the relative supply of young workers, or youth share, has a statistically significant effect on the volatility of state-by-state GDP. Moreover, changes to the age distribution can account for up to 58% of the recent reduction in business cycle fluctuations, indicating a critical link between the youth share and output volatility. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 4 (November)
Pages: 896-902

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Handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:896-902

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Related research

Keywords: age distribution; business cycles; demographics; United States;

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References

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  1. Rui Castro & Daniele Coen-Pirani, 2008. "WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID-1980s?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 135-185, 02.
  2. Rios-Rull, Jose-Victor, 1996. "Life-Cycle Economies and Aggregate Fluctuations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 465-89, July.
  3. Robert Shimer, 2001. "The Impact Of Young Workers On The Aggregate Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(3), pages 969-1007, August.
  4. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, American Economic Association, vol. 99(3), pages 804-26, June.
  5. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 22(4), pages 155-80, Fall.
  6. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2004. "The business cycle and the life cycle," Working Paper, Federal Reserve Bank of Cleveland 0404, Federal Reserve Bank of Cleveland.
  7. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 81(4), pages 608-616, November.
  8. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  9. Nir Jaimovich & Seth Pruitt & Henry E. Siu, 2009. "The demand for youth: implications for the hours volatility puzzle," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 964, Board of Governors of the Federal Reserve System (U.S.).
  10. James Feyrer, 2007. "Demographics and Productivity," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 89(1), pages 100-109, February.
  11. Lugauer, Steven, 2012. "Demographic Change And The Great Moderation In An Overlapping Generations Model With Matching Frictions," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 16(05), pages 706-731, November.
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Cited by:
  1. Chadwick C. Curtis & Steven Lugauer & Nelson C. Mark, 2011. "Demographic Patterns and Household Saving in China," NBER Working Papers 16828, National Bureau of Economic Research, Inc.
  2. Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers, University of Notre Dame, Department of Economics 005, University of Notre Dame, Department of Economics, revised Jun 2012.
  3. Lugauer, Steven & Redmond, Michael, 2012. "The age distribution and business cycle volatility: International evidence," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 694-696.
  4. Mennuni, Alessandro, 2013. "Labor Force Composition and Aggregate Fluctuations," Discussion Paper Series In Economics And Econometrics, Economics Division, School of Social Sciences, University of Southampton 1302, Economics Division, School of Social Sciences, University of Southampton.
  5. Burkhard Heer & Stefan Rohrbacher & Christian Scharrer, 2014. "Aging, the Great Moderation and Business-Cycle Volatility in a Life-Cycle Model," CESifo Working Paper Series, CESifo Group Munich 4584, CESifo Group Munich.
  6. Lugauer, Steven, 2012. "Demographic Change And The Great Moderation In An Overlapping Generations Model With Matching Frictions," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 16(05), pages 706-731, November.

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