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Capital flows among the G-7 nations: a demographic perspective

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  • Michael Feroli

Abstract

The standard life-cycle model of consumption behavior predicts that a household's age will influence its saving behavior. Moreover, simple national accounting identities reveal that a country's current account balance reflects its savings-investment imbalance. Thus, differences in national age-profiles should affect the current account. To test this theory's plausibility and significance, I simulate a multi-region overlapping generations model that is calibrated to match the demographic differences among the major industrialized countries over the past 50 years. In the model, it is found that these differences can explain some of the observed long-term capital movements in the G-7. In particular, the model does a good job of predicting the size and timing of American current account deficits as well as Japanese current account surpluses.

Suggested Citation

  • Michael Feroli, 2003. "Capital flows among the G-7 nations: a demographic perspective," Finance and Economics Discussion Series 2003-54, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2003-54
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    References listed on IDEAS

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    Cited by:

    1. Michael Graff & Kam-Ki Tang & Jie Zhang, "undated". "Demography, Financial Openness, National Savings and External Balance," MRG Discussion Paper Series 2008, School of Economics, University of Queensland, Australia.
    2. Luca, MARCHIORI, 2007. "ChinAfrica : How can the Sino-African cooperation be beneficial for Africa ?," Discussion Papers (ECON - Département des Sciences Economiques) 2007014, Université catholique de Louvain, Département des Sciences Economiques.
    3. Marchiori, Luca, 2011. "Demographic trends and international capital flows in an integrated world," Economic Modelling, Elsevier, vol. 28(5), pages 2100-2120, September.
    4. Krueger, Dirk & Ludwig, Alexander, 2007. "On the consequences of demographic change for rates of returns to capital, and the distribution of wealth and welfare," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 49-87, January.
    5. Brahima Coulibaly & Jonathan N. Millar, 2008. "The Asian financial crisis, uphill flow of capital, and global imbalances: evidence from a micro study," International Finance Discussion Papers 942, Board of Governors of the Federal Reserve System (U.S.).
    6. Andrew K. Rose & Saktiandi Supaat & Jacob Braude, 2009. "Fertility and the real exchange rate," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 496-518, May.
    7. Ferrero, Andrea, 2010. "A structural decomposition of the U.S. trade balance: Productivity, demographics and fiscal policy," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 478-490, May.
    8. David Backus & Thomas Cooley & Espen Henriksen, 2013. "Demography and Low-Frequency Capital Flows," NBER Chapters,in: NBER International Seminar on Macroeconomics 2013, pages 94-102 National Bureau of Economic Research, Inc.
    9. Hiroyuki Ito & Ken Tabata, 2010. "The spillover effects of population aging, international capital flows, and welfare," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 665-702, March.
    10. Andrea Ferrero, 2007. "The long-run determinants of U.S. external imbalances," Staff Reports 295, Federal Reserve Bank of New York.
    11. Kazuhiko Oyamada & Ken Itakura, 2013. "Population Aging in the Interdependent Global Economy: A Computational Approach with an Overlapping Generations Model of Global Trade," EcoMod2013 5672, EcoMod.

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    Keywords

    Capital movements - Group of Seven countries;

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