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Relative Sectoral Prices and Population Ageing: A Common Trend

Max Groneck and Christoph Kaufmann

No 69, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: Demographic change raises demand for non-tradable old-age related services relative to tradable commodities. This demand shift increases the relative price of non-tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand affects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries between 1970 and 2009, we estimate a robust increase of relative prices due to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.

Keywords: Demographic change; relative price of non-tradables; real exchange rate (search for similar items in EconPapers)
JEL-codes: E39 F41 J11 (search for similar items in EconPapers)
Date: 2014-01-17
New Economics Papers: this item is included in nep-age and nep-opm
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