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Looking behind the financial cycle: the neglected role of demographics

Author

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  • Alessandro Ferrari

    (Bank of Italy)

Abstract

Data demonstrate a correlation between demographic variables and financial cycle: an increase in the working-age population is associated with an expansion of the financial cycle, that is, credit growth and increased housing prices. To account for this stylized fact, this paper uses an OLG model with data on housing prices, life-cycle of income, and consumption. A transitory baby boom, which increases the working-age population, leads to higher housing prices and household borrowing.

Suggested Citation

  • Alessandro Ferrari, 2017. "Looking behind the financial cycle: the neglected role of demographics," Temi di discussione (Economic working papers) 1149, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1149_17
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2017/2017-1149/en_tema_1149.pdf
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    More about this item

    Keywords

    financial cycle; demographic trends; overlapping generations; housing;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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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