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Demography, capital flows and unemployment

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  • Luca Marchiori
  • Olivier Pierrard
  • Henri R. Sneessens

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 themodel to investigate how demographic asymmetriesmay 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.

Suggested Citation

  • Luca Marchiori & Olivier Pierrard & Henri R. Sneessens, 2011. "Demography, capital flows and unemployment," BCL working papers 69, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp069
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    Cited by:

    1. Devriendt, Willem & Heylen, Freddy, 2020. "Macroeconomic and distributional effects of demographic change in an open economy—the case of Belgium," Journal of Demographic Economics, Cambridge University Press, vol. 86(1), pages 87-124, March.
    2. Luca Marchiori & Olivier Pierrard, 2012. "LOLA 2.0: Luxembourg OverLapping generation model for policy Analysis," BCL working papers 76, Central Bank of Luxembourg.
    3. Daniel Baksa & Zsuzsa Munkacsi, 2016. "A Detailed Description of OGRE, the OLG Model," Bank of Lithuania Working Paper Series 31, Bank of Lithuania.
    4. Tomáš, Domonkos & Filip, Ostrihoň & Ivana, Šikulová & Mária, Širaňová, 2017. "Analysing the Relevance of the MIP Scoreboard's Indicators," National Institute Economic Review, Cambridge University Press, vol. 239, pages 32-52, February.
    5. Anna Batyra & David de la Croix & Olivier Pierrard & Henri Sneessens, 2016. "Structural changes in the labor market and the rise of early retirement in Europe," DEM Discussion Paper Series 16-13, Department of Economics at the University of Luxembourg.

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    More about this item

    Keywords

    demographics; capital flows; overlapping generations; general equilibrium; unemployment;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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