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The Young, the Old, and the Restless: Demographics and Business Cycle Volatility

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Author Info
Nir Jaimovich
Henry E. Siu

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Abstract

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding timing and nature differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Through simple quantitative accounting exercises, we find that demographic change accounts for approximately one-fifth to one-third of this moderation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14063.

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Date of creation: Jun 2008
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Handle: RePEc:nbr:nberwo:14063

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E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Del Negro & Christopher Otrok, 2008. "Dynamic factor models with time-varying parameters: measuring changes in international business cycles," Staff Reports 326, Federal Reserve Bank of New York. [Downloadable!]
  2. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2008. "Business Volatility, Job Destruction, and Unemployment," NBER Working Papers 14300, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings, Federal Reserve Bank of Kansas City, pages 265-305. [Downloadable!]
  4. James Feigenbaum & Geng Li, 2008. "Lifecycle dynamics of income uncertainty and consumption," Finance and Economics Discussion Series 2008-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  5. James Feigenbaum & Geng Li, 2008. "A Nonparametric Characterization of Income Uncertainty over the Lifecycle," Working Papers 359, University of Pittsburgh, Department of Economics, revised Jul 2008. [Downloadable!]
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