AGING, THE GREAT MODERATION, AND BUSINESS-CYCLE VOLATILITY IN A LIFE-CYCLE MODEL

Burkhard Heer, Stefan Rohrbacher and Christian Scharrer

Macroeconomic Dynamics, 2017, vol. 21, issue 2, 362-383

Abstract: According to empirical studies, the life cycle of labor supply volatility exhibits a U-shaped pattern. This may lead to the conclusion that demographic change induces a drop in output volatility. We present an overlapping-generations model that replicates the empirically observed pattern and study the impact of demographic transition on output volatility. We find that the change in age composition itself has only a marginal influence on output volatility, as the mitigating effect of more individuals with lower labor supply volatilities is compensated for by higher age-specific labor shares. Instead, the driving force behind the Great Moderation in our model is the downward shift of the age-specific labor supply volatility curve.

Date: 2017
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Related works:
Working Paper: Aging, the Great Moderation and Business-Cycle Volatility in a Life-Cycle Model (2014)
Working Paper: Aging, the Great Moderation and Business-Cycle Volatility in a Life-Cycle Model (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:21:y:2017:i:02:p:362-383_00

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