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Ageing, Retirement and Savings: A General Equilibrium Analysis

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  • Mariano Kulish

    (Reserve Bank of Australia)

  • Kathryn Smith

    (Reserve Bank of Australia)

  • Christopher Kent

    (Reserve Bank of Australia)

Abstract

This paper studies the macroeconomic consequences of ageing in an overlapping-generations model with endogenous retirement. We study the behaviour of the economy when population ageing is driven by movements in fertility, changes in longevity, and a combination of both. To gauge the economic implications of these demographic changes we calibrate the model to match key features of the Australian economy. With either a fall in fertility or a rise in longevity, population ageing increases capital intensity in the long run. When fertility and longevity operate together, the increase in capital intensity is more than additive, and the share of life spent in retirement stays roughly constant. The dynamic response of the economy is sensitive to the relative strength of the two factors that drive ageing.

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Bibliographic Info

Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2006-06.

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Date of creation: Jul 2006
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Handle: RePEc:rba:rbardp:rdp2006-06

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Keywords: baby boom; endogenous retirement; longevity; OLG (overlapping generations);

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References

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  1. James M. Poterba, 2004. "The impact of population aging on financial markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 163-216.
  2. David E. Bloom & David Canning & Michael Moore, 2005. "The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving," PGDA Working Papers 0205, Program on the Global Demography of Aging.
  3. David E. Bloom & David Canning & Bryan Graham, 2002. "Longevity and Life Cycle Savings," NBER Working Papers 8808, National Bureau of Economic Research, Inc.
  4. George M. Constantinidies & John B. Donaldson & Rajnish Mehra, 1998. "Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle," NBER Working Papers 6617, National Bureau of Economic Research, Inc.
  5. Jie Zhang & Junsen Zhang, 2005. "The Effect of Life Expectancy on Fertility, Saving, Schooling and Economic Growth: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 45-66, 03.
  6. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
  7. Dora L. Costa, 1998. "The Evolution of Retirement: An American Economic History, 1880-1990," NBER Books, National Bureau of Economic Research, Inc, number cost98-1, July.
  8. Fogel, Robert W., 1993. "Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy," Nobel Prize in Economics documents 1993-1, Nobel Prize Committee.
  9. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
  10. Robin Brooks, 2002. "Asset-Market Effects of the Baby Boom and Social-Security Reform," American Economic Review, American Economic Association, vol. 92(2), pages 402-406, May.
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Cited by:
  1. Lees, Kirdan, 2013. "Golden years? The impacts of New Zealand’s ageing on wages, interest rates, wealth and macroeconomy," NZIER Working Paper 2013/1, New Zealand Institute of Economic Research.
  2. David E. Bloom & David Canning & Michael Moore & Younghwan Song, 2006. "The Effect of Subjective Survival Probabilities on Retirement and Wealth in the United States," NBER Working Papers 12688, National Bureau of Economic Research, Inc.
  3. Christopher Kent & Crystal Ossolinski & Luke Willard, 2007. "The Rise of Household Indebtedness," RBA Annual Conference Volume, in: Christopher Kent & Jeremy Lawson (ed.), The Structure and Resilience of the Financial System Reserve Bank of Australia.
  4. Ross Guest & Anthony J Makin, 2012. "Fiscal stimulus: an overlapping generations analysis," Economic Issues Journal Articles, Economic Issues, vol. 17(2), pages 1-25, September.
  5. David E. Bloom & David Canning, 2006. "Global Demography: Fact, Force and Future," PGDA Working Papers 1406, Program on the Global Demography of Aging.
  6. George Kudrna & Chung Tran & Alan Wooland, 2014. "The Dynamic Fiscal Effects of Demographic Shift: The Case of Australia," ANU Working Papers in Economics and Econometrics 2014-616, Australian National University, College of Business and Economics, School of Economics.
  7. Michael Spence & Danny Leipziger, 2010. "Globalization and Growth - Implications for a Post-Crisis World : Commission on Growth and Development," World Bank Publications, The World Bank, number 2440, August.
  8. David E. Bloom & David Canning & Günther Fink, 2011. "Implications of Population Aging for Economic Growth," NBER Working Papers 16705, National Bureau of Economic Research, Inc.
  9. Jamie Hall & Andrew Stone, 2010. "Demography and Growth," RBA Bulletin, Reserve Bank of Australia, pages 15-23, June.
  10. Knell, Markus, 2013. "The Intergenerational Distribution of Demographic Fluctuations in Unfunded and Funded Pension Systems," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79830, Verein für Socialpolitik / German Economic Association.
  11. Chung Tran, 2014. "Temptation and Taxation with Elastic Labor," ANU Working Papers in Economics and Econometrics 2014-617, Australian National University, College of Business and Economics, School of Economics.
  12. Ross Guest, 2013. "Intergenerational Smoothing of New Zealand’s Future Fiscal Costs," Treasury Working Paper Series 13/12, New Zealand Treasury.
  13. George Kudrna & Alan Woodland, 2012. "Progressive Tax Changes to Private Pensions in a Life-Cycle Framework," Working Papers 201209, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  14. David E. Bloom & David Canning & Gunther Fink, 2009. "The Graying of Global Population and Its Macroeconomic Consequences," PGDA Working Papers 4709, Program on the Global Demography of Aging.

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