How do baby boomers affect interest rates? A functional analysis of the impact of age distribution on macroeconomic trends

Jiazi Chen and Linlin Niu

Finance Research Letters, 2023, vol. 53, issue C

Abstract: The phenomenon of “falling stars” in the U.S., declining trends in nominal yields since the 1980s accompanied by falling inflation and real interest rates in tandem, calls for a coherent explanation of the long-term driving forces. Using data on the demographic age distribution, we estimate the functional demographic (FD) trends in these economic variables. The FD trends fit the low-frequency movements in interest rates remarkably well. Decomposition analysis shows that baby boomers’ life-cycle impact dominates the trends in interest rates until their retirement age. The FD trends of inflation and real rates are consistent with the pattern of “falling stars”.

Keywords: Interest rate; Demographic trend; Age distribution; Baby boomers; Non-parametric method (search for similar items in EconPapers)
JEL-codes: C14 E43 G12 J11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000405

DOI: 10.1016/j.frl.2023.103666

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