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Demography, Capital Flows and Unemployment

Author

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  • Marchiori, Luca

    () (Central Bank of Luxembourg)

  • Pierrard, Olivier

    () (Central Bank of Luxembourg)

  • Sneessens, Henri R.

    () (University of Luxembourg)

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 the model to investigate how demographic asymmetries may 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

  • Marchiori, Luca & Pierrard, Olivier & Sneessens, Henri R., 2011. "Demography, Capital Flows and Unemployment," IZA Discussion Papers 6094, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6094
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    Cited by:

    1. Willem Devriendt & Freddy Heylen, 2017. "Macroeconomic Effects Of Demographic Change In An Olg Model For A Small Open Economy - The Case Of Belgium -," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 17/931, Ghent University, Faculty of Economics and Business Administration.
    2. Daniel Baksa & Zsuzsa Munkacsi, 2016. "A Detailed Description of OGRE, the OLG Model," Bank of Lithuania Working Paper Series 31, Bank of Lithuania.
    3. 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," CREA Discussion Paper Series 16-13, Center for Research in Economic Analysis, University of Luxembourg.
    4. Luca Marchiori & Olivier Pierrard, 2012. "LOLA 2.0: Luxembourg OverLapping generation model for policy Analysis," BCL working papers 76, Central Bank of Luxembourg.
    5. Domonkos Tomáš & Ostrihoň Filip & Šikulová Ivana & Širaňová Mária, 2017. "Analysing the Relevance of the MIP Scoreboard's Indicators," National Institute Economic Review, National Institute of Economic and Social Research, vol. 239(1), pages 32-52, February.

    More about this item

    Keywords

    demographics; capital flows; overlapping generations; general equilibrium; unemployment;

    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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