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Relative Sectoral Prices and Population Ageing: A Common Trend

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  • Max Groneck
  • Christoph Kaufmann
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    Abstract

    Demographic change raises demand for non-tradable old-age related services relative to tradable commodities. This demand shift increases the relative price of non-tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand affects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries between 1970 and 2009, we estimate a robust increase of relative prices due to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.

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    Bibliographic Info

    Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 69.

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    Date of creation: 17 Jan 2014
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    Handle: RePEc:kls:series:0069

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    Keywords: Demographic change; relative price of non-tradables; real exchange rate;

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