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A Probabilistic Cohort-Component Model for Population Forecasting - The Case of Germany

Patrizio Vanella and Philipp Deschermeier

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: The future development of population size and structure is of importance since planning in many areas of politics and business is conducted based on expectations about the future makeup of the population. Countries with both decreasing mortality and low fertility rates, which is the case for most countries in Europe, urgently need adequate population forecasts to identify future problems regarding social security systems as one determinant of overall macroeconomic development. This contribution proposes a stochastic cohort-component model that uses simulation techniques based on stochastic models for fertility, migration and mortality to forecast the population by age and sex. We specifically focus on quantifying the uncertainty of future development as previous studies have tended to underestimate future risk. The results provide detailed insight into the future population structure, disaggregated into both sexes and 116 age groups. Moreover, the uncertainty in the forecast is quantified as prediction intervals for each subgroup. The underlying models for forecasting the demographic components have been developed in earlier studies and rely on principal component time series models. Since the proposed model is fully probabilistic, it offers a wide range of information, not only identifying the most probable course of the population but also a vast number of possible scenarios for future development of the population and quantifying their respective likelihoods. The model is applied to forecast the population of Germany until 2040. The results indicate a larger future population for Germany compared to the population predicted in studies conducted before 2015. The driving factors are lower mortality, higher fertility and higher net migration as derived by us statistically in contrast to widely used qualitative assumptions. The present study shows that the increase in population is mainly due to a larger proportion of older individuals.

Keywords: Population Forecasting; Stochastic Simulation; Cohort-Component Methods; Principal Component Analysis; Time Series Analysis (search for similar items in EconPapers)
JEL-codes: C22 C53 J11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-for
Date: 2018-09
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