Deterministic and stochastic trends in the Lee–Carter mortality model

Laurent Callot (), Niels Haldrup () and Malene Kallestrup-Lamb

Applied Economics Letters, 2016, vol. 23, issue 7, 486-493

Abstract: The Lee and Carter (1992) model assumes that the deterministic and stochastic time series dynamics load with identical weights when describing the development of age-specific mortality rates. Effectively this means that the main characteristics of the model simplify to a random walk model with age-specific drift components. But restricting the adjustment mechanism of the stochastic and linear trend components to be identical may be too strong a simplification. In fact, the presence of a stochastic trend component may itself result from a bias induced by properly fitting the linear trend that characterizes mortality data. We find empirical evidence that this feature of the Lee–Carter model overly restricts the system dynamics and we suggest to separate the deterministic and stochastic time series components at the benefit of improved fit and forecasting performance. In fact, we find that the classical Lee–Carter model will otherwise overestimate the reduction of mortality for the younger age groups and will underestimate the reduction of mortality for the older age groups. In practice, our recommendation means that the Lee–Carter model instead of a one-factor model should be formulated as a two- (or several) factor model where one factor is deterministic and the other factors are stochastic. This feature generalizes to the range of models that extend the Lee–Carter model in various directions.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2015.1083075 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Deterministic and stochastic trends in the Lee-Carter mortality model (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:23:y:2016:i:7:p:486-493

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2015.1083075

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().