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Impacts of Population Aging on Real Interest Rates (in Korean)

Author

Listed:
  • Myunghyun Kim

    (Economic Research Institute, Bank of Korea)

  • Ohik Kwon

    (Economic Research Institute, Bank of Korea)

Abstract

Since the mid-1990s, Korea has been aging rapidly. At the same time, real interest rates have declined sharply. This paper studies whether population aging has contributed to the real interest rate decrease in Korea. We first present empirical evidence that increases in life expectancy and the old-age-dependency ratio, and a fall in population growth, i.e., the population aging, decrease real interest rates. Then we calibrate a life-cycle model to capture the features of the old-age-dependency ratio and population growth in Korea, and show that population aging accounts for about one third of the fall in real interest rates between 1995 and 2018. Furthermore, according to simulation results, increased life expectancy is more important than decreased population growth in affecting the real interest rate decrease during the period.

Suggested Citation

  • Myunghyun Kim & Ohik Kwon, 2020. "Impacts of Population Aging on Real Interest Rates (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 26(1), pages 133-166, March.
    • Handle: RePEc:bok:journl:v:26:y:2020:i:1:p:133-166
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    More about this item

    Keywords

    Population Aging; Real Interest Rates; Life-cycle Model; Life Expectancy; Population Growth;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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