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Demography, capital flows and unemployment

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  • Luca Marchiori

    ()
    (Central Bank of Luxembourg and IRES Université catholique de Louvain)

  • Olivier Pierrard

    ()
    (Central Bank of Luxembourg and IRES Université catholique de Louvain)

  • Henri R. Sneessens

    ()
    (and IRES Université catholique de Louvain)

Abstract

This paper contributes to the already vast literature on demography-induced international capital flows by examining the role of labor market imperfections and institutions. We setup a two-country overlapping generations model with search unemployment, which we calibrate on EU15 and US data. Labor market imperfections are found to significantly increase the volume of capital flows, because of stronger employment adjustments in comparison with a competitive economy. We next exploit the model to investigate how demographic asymmetries may have contributed to unemployment and welfare changes in the recent past (1950-2010). We show that a policy reform in one country also has an impact on labor markets in other countries when capital is mobile.

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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 11-14.

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Date of creation: 2011
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Handle: RePEc:luc:wpaper:11-14

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Keywords: demographics; capital flows; overlapping generations; general equilibrium; unemployment;

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Cited by:
  1. Luca Marchiori & Olivier Pierrard, 2012. "LOLA 2.0: Luxembourg OverLapping generation model for policy Analysis," BCL working papers, Central Bank of Luxembourg 76, Central Bank of Luxembourg.

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