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Estimating the Effects of Demographics on Interest Rates: A Robust Bayesian Perspective

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  • Paul Ho

Abstract

There are a vast range of estimates for the effect of demographics on interest rates. I show that these magnitudes are not well-identified without data on capital and life-cycle consumption. However, these data are often omitted. Using nonparametric prior sensitivity analysis for an overlapping generations model estimated through Bayesian methods, I show that without these data, small changes in the prior for the discount rate, intertemporal elasticity of substitution, and capital depreciation rate can shift the posterior quantiles for the effects of demographics by up to 1.5 percentage points. Data on the capital-output ratio and life-cycle consumption tighten identification.

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  • Paul Ho, 2020. "Estimating the Effects of Demographics on Interest Rates: A Robust Bayesian Perspective," Working Paper 20-14, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:89560
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    Cited by:

    1. Ho, Paul, 2023. "Global robust Bayesian analysis in large models," Journal of Econometrics, Elsevier, vol. 235(2), pages 608-642.

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    Keywords

    Interest rates; Bayesian methods; Discount rates;
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