Understanding the New Normal: The Role of Demographics

Etienne Gagnon, Benjamin K. Johannsen () and David López-Salido ()
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Benjamin K. Johannsen: Federal Reserve Board
David López-Salido: Federal Reserve Board

IMF Economic Review, 2021, vol. 69, issue 2, No 3, 357-390

Abstract: Abstract We calibrate an overlapping-generations model with a rich demographic structure to observed and projected changes in U.S. population, family composition, life expectancy, and labor market activity. The model indicates that demographic factors associated with the post-war baby boom pushed up real interest rates and real gross domestic product (GDP) growth from 1960 to the 1980s. Since the 1980s, the model accounts for a little more than a 1-percentage-point decline in both real GDP growth and real interest rates—much of the permanent declines in those variables according to some estimates. Our model predicts GDP growth and interest rates will remain low by historical standards, consistent with a “new normal” for the U.S. economy.

Keywords: E17; E21; J11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (41)

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Working Paper: Understanding the New Normal: The Role of Demographics (2016)
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DOI: 10.1057/s41308-021-00138-4

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