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The Young, the Old, and the Restless: Demographics and Business Cycle Volatility

  • Nir Jaimovich

    ()

    (Stanford University)

  • Henry E. Siu

    ()

    (University of British Columbia)

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding extent and timing differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Using both simple accounting exercises and a quantitative general equilibrium model, we find that demographic change accounts for a significant part of this moderation.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-010.

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Date of creation: Mar 2007
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Handle: RePEc:sip:dpaper:07-010
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