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Demographic Structure and Macroeconomic Trends

Author

Listed:
  • Yunus Aksoy

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Henrique S. Basso

    (Banco de España)

  • Tobias Grasl

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Ron P. Smith

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

We analyse both empirically and theoretically the effects of changes in demographic structure on the macroeconomy, looking particular at their impact to medium-term trends. Our empirical exercise examines the impact of the proportion of the population in each age group, on growth, savings, investment, hours, interest rates and inflation using a panel VAR estimated from data for 20 OECD economies for the period 1970-2007. This flexible dynamic structure with interactions among the main variables allows us to estimate both the direct impact of demographic structure and their feedback effects. Our estimates confirm the importance of age structure, with young and old dependants having a negative impact on most macroeconomic variables while workers contribute positively. Our theoretical framework incorporates demographic heterogeneity and endogenous productivity, allowing us to study the medium-term interaction of demographic changes and savings, investment, and innovation decisions. Theoretical simulations incorporating the changes in demographic structure experienced by many OECD countries in the past decades replicate well our empirical findings. The current trend of population aging and reduced fertility, expected to continue in the next decades, is found to be a strong force in reducing output growth and real interest rates across OECD countries.

Suggested Citation

  • Yunus Aksoy & Henrique S. Basso & Tobias Grasl & Ron P. Smith, 2015. "Demographic Structure and Macroeconomic Trends," Birkbeck Working Papers in Economics and Finance 1501, Birkbeck, Department of Economics, Mathematics & Statistics.
  • Handle: RePEc:bbk:bbkefp:1501
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    References listed on IDEAS

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    Cited by:

    1. Gabriele Fiorentini & Alessandro Galesi & Gabriel Pérez-Quirós & Enrique Sentana, 2018. "The rise and fall of the natural interest rate," Working Papers 1822, Banco de España;Working Papers Homepage.
    2. Carvalho, Carlos & Ferrero, Andrea & Nechio, Fernanda, 2016. "Demographics and real interest rates: Inspecting the mechanism," European Economic Review, Elsevier, vol. 88(C), pages 208-226.
    3. Favero, Carlo A. & Galasso, Vincenzo, 2015. "Demographics and the Secular Stagnation Hypothesis in Europe," CEPR Discussion Papers 10887, C.E.P.R. Discussion Papers.
    4. Ahmed, S. Amer & Vargas Da Cruz,Marcio Jose & Quillin,Bryce Ramsey & Schellekens,Philip, 2016. "Demographic change and development : a global typology," Policy Research Working Paper Series 7893, The World Bank.
    5. Del Negro, Marco & Giannone, Domenico & Giannoni, Marc & Tambalotti, Andrea, 2018. "Global trends in interest rates," Staff Reports 866, Federal Reserve Bank of New York.
    6. Frankovic, Ivan & Kuhn, Michael, 2018. "Health insurance, endogenous medical progress, and health expenditure growth," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2018, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    7. Juselius, Mikael & Takáts, Előd, 2018. "The enduring link between demography and inflation," Research Discussion Papers 8/2018, Bank of Finland.
    8. Ferrero, Giuseppe & Gross, Marco & Neri, Stefano, 2017. "On secular stagnation and low interest rates: demography matters," Working Paper Series 2088, European Central Bank.
    9. Shekhar Aiyar & Christian H Ebeke, 2016. "The Impact of Workforce Aging on European Productivity," IMF Working Papers 16/238, International Monetary Fund.
    10. M. Marx & B. Mojon & F. Velde, 2017. "Why Have Interest Rates Fallen far Below the Return on Capital," Working papers 630, Banque de France.
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    15. Fedotenkov, Igor, 2018. "Population ageing and inflation with endogenous money creation," Research in Economics, Elsevier, vol. 72(3), pages 392-403.
    16. Tatiana Didier & M. Ayhan Kose & Franziska Ohnsorge & Lei Sandy Ye, 2015. "Slowdown in Emerging Markets: Rough Patch or Prolonged Weakness?," Koç University-TUSIAD Economic Research Forum Working Papers 1529, Koc University-TUSIAD Economic Research Forum.
    17. Henrique S. Basso & Omar Rachedi, 2018. "The young, the old, and the government: demographics and fiscal multipliers," Working Papers 1837, Banco de España;Working Papers Homepage.
    18. Nicole Maestas & Kathleen J. Mullen & David Powell, 2016. "The Effect of Population Aging on Economic Growth, the Labor Force and Productivity," NBER Working Papers 22452, National Bureau of Economic Research, Inc.
    19. Lisa Gianmoena & Vicente Rios, 2018. "The Determinants of Resilience in European Regions During the Great Recession: a Bayesian Model Averaging Approach," Discussion Papers 2018/235, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    20. Edle von Gaessler, Anne & Ziesemer, Thomas, 2017. "Ageing, human capital and demographic dividends with endogenous growth, labour supply and foreign capital," MERIT Working Papers 043, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    21. Manuel, Lancastre, 2016. "Age Milestones and Low Interest Rates, an Analytic Approach," MPRA Paper 85046, University Library of Munich, Germany.
    22. repec:nbr:nberch:14114 is not listed on IDEAS
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    24. Bańbura, Marta & Albani, Maria & Ambrocio, Gene & Bursian, Dirk & Buss, Ginters & de Winter, Jasper & Gavura, Miroslav & Giordano, Claire & Júlio, Paulo & Le Roux, Julien & Lozej, Matija & Malthe-Thag, 2018. "Business investment in EU countries," Occasional Paper Series 215, European Central Bank.
    25. repec:eee:ecmode:v:68:y:2018:i:c:p:435-449 is not listed on IDEAS

    More about this item

    Keywords

    Demographic changes; population age profile; medium-term; output growth; savings and investment.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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