IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Population Ageing in New Zealand: The Impact on Living Standards and the Optimal Rate of Saving with a Flexible Real Exchange Rate

Listed author(s):

The purpose of this paper is to extend the simulation analysis of population ageing in Guest, Bryant and Scobie (2003). In that paper a single-good Ramsey-Solow model was calibrated for New Zealand and used to simulate the impact of population ageing on optimal national saving and average living standards over the next 100 years. There are several innovations in the present paper. One is to allow for tradable and non-tradable goods and thereby to introduce a real exchange rate. Changes in the real exchange rate due to population ageing produce substitution effects between tradable and non-tradable goods, in both consumption and investment. Other innovations in this paper are an outward-looking model of utility, a proportion of rule-of-thumb consumers, and a vintage capital model. The simulations of population ageing are conducted by first deriving a range of demographic projections from alternative assumptions about fertility, mortality and immigration. The resulting series for population and employment by age group are weighted to account for age-specific labour productivity levels and consumption demands. The model is solved by finding optimal paths of investment and consumption from an initial steady state to a new steady state following a demographic shock. The sanguine assessment of the impact of population ageing on living standards and national saving in Guest, Bryant and Scobie (2003) remains intact following the extensions applied to the model in this paper. That is, the cost of ageing is equivalent in its effect on living standards to an annual loss of labour productivity growth of about a quarter of one percent over the next 50 years. The optimal path for national saving implies a rise of up to 2% of GDP over the next decade, relative to that which would have been optimal in the absence of population ageing. In all the cases considered, the optimal level of savings then trends down, so that by 2051 it would be about 2 percentage points of GDP lower than the level that would have been optimal were the population age structure to have remained unchanged.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 03/34.

in new window

Length: 30
Date of creation: Dec 2003
Handle: RePEc:nzt:nztwps:03/34
Contact details of provider: Postal:
New Zealand Treasury, PO Box 3724, Wellington, New Zealand

Phone: +64-4-472 2733
Fax: +64-4-473 0982
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
  2. Ross Guest & John Bryant & Grant Scobie, 2003. "Population Ageing In New Zealand: Implications for Living Standards and the Optimal Rate of Saving," Treasury Working Paper Series 03/10, New Zealand Treasury.
  3. Carroll, Christopher D & Overland, Jody & Weil, David N, 1997. "Comparison Utility in a Growth Model," Journal of Economic Growth, Springer, vol. 2(4), pages 339-367, December.
  4. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
  5. Dave Turner & Claude Giorno & Alain de Serres & Ann Vourc'h & Pete Richardson, 1998. "The Macroeconomic Implications of Ageing in a Global Context," OECD Economics Department Working Papers 193, OECD Publishing.
  6. repec:fth:harver:1490 is not listed on IDEAS
  7. Tim Callen & Warwick J. McKibbin & Nicoletta Batini, 2006. "The Global Impact of Demographic Change," IMF Working Papers 06/9, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nzt:nztwps:03/34. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Web and Publishing Team, The Treasury)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.