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The Demographic Deficit

Author

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  • Espen Henriksen

    (University of California, Davis)

  • Thomas Cooley

    (New York University)

Abstract

There has been a slowdown in growth in the world's largest economies. One argument is that this slowdown represents a permanent shift in potential output because the innovations available to us in the future will not lead to the productivity growth that we have experienced in the recent past. An alternative argument, the Secular Stagnation hypothesis - is that the slower growth reflects a shortfall of aggregate demand at current interest rates. In this view the real natural rate of interest has declined and the real interest rate required to equate savings and investment at full employment is negative. One important issue that both explanations must confront is accounting for the differences in slowdown across the major developed economies. Differences in TFP growth turn out to play a minor role. The largest contributions to the differences in GDP growth are demographic factors: population growth, labor market participation, average number of hours worked, and capital intensity. Accounting for the historical differences gives a laboratory to project future growth rates given population forecasts.

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  • Espen Henriksen & Thomas Cooley, 2016. "The Demographic Deficit," 2016 Meeting Papers 1481, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1481
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    References listed on IDEAS

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    4. Herkenhoff, Kyle F. & Ohanian, Lee E. & Prescott, Edward C., 2018. "Tarnishing the golden and empire states: Land-use restrictions and the U.S. economic slowdown," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 89-109.
    5. Brunnschweiler, Christa N. & Peretto, Pietro F. & Valente, Simone, 2021. "Wealth creation, wealth dilution and demography," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 441-459.
    6. Andrea Papetti, 2021. "Population aging, relative prices and capital flows across the globe," Temi di discussione (Economic working papers) 1333, Bank of Italy, Economic Research and International Relations Area.
    7. Thomas F. Cooley & Espen Henriksen & Charlie Nusbaum, 2019. "Demographic Obstacles to European Growth," NBER Working Papers 26503, National Bureau of Economic Research, Inc.
    8. Park, Cyn-Young & Shin, Kwanho & Kikkawa, Aiko, 2021. "Aging, automation, and productivity in Korea1," Journal of the Japanese and International Economies, Elsevier, vol. 59(C).
    9. Mammen, Enno & Martínez-Miranda, María Dolores & Nielsen, Jens Perch & Vogt, Michael, 2021. "Calendar effect and in-sample forecasting," Insurance: Mathematics and Economics, Elsevier, vol. 96(C), pages 31-52.

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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