Estimating the effects of demographics on interest rates: A robust Bayesian perspective

Paul Ho

Journal of Economic Dynamics and Control, 2024, vol. 158, issue C

Abstract: We highlight a reason for the vast range of estimates for the effect of demographics on interest rates: the magnitudes are not well-identified without often omitted data on capital and life-cycle consumption. Using nonparametric prior sensitivity analysis for an overlapping generations model estimated through Bayesian methods, we show small changes in the prior for the discount rate, intertemporal elasticity of substitution, and depreciation rate can shift posterior quantiles for the effects of demographics by up to 1.5 percentage points. Capital-output ratio data substantially tighten estimates of the depreciation rate but not the discount rate. Life-cycle consumption is especially informative about the intertemporal elasticity of substitution.

Keywords: Demographics; Interest rates; Prior sensitivity (search for similar items in EconPapers)
Date: 2024
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Working Paper: Estimating the Effects of Demographics on Interest Rates: A Robust Bayesian Perspective (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:158:y:2024:i:c:s0165188923001781

DOI: 10.1016/j.jedc.2023.104772

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