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Wealth and Demographics in the 21st Century

Adrien Auclert (), Frederic Martenet and Hannes Malmberg
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Hannes Malmberg: University of Minnesota

No 952, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Macroeconomists agree that population aging is likely to reduce equilibrium real interest rates. However, there is disagreement regarding the magnitude of this effect, and the mechanisms through which it operates. In this paper, we reconsider the pressure of demographic change on interest rates. Using a rich overlapping generation model, we show that this effect can be expressed as a function of a few interpretable elasticities. We calculate some of these elasticities directly using empirical age-wealth profiles and projected population age distributions. Our results suggest that, if interest rates were to remain constant, the twenty-first century would see a very large increase in the wealth-to-GDP ratios of rich countries. We use our decomposition framework to guide our calibration of the remaining parameters of our model and to bound the decline in equilibrium interest rates we should expect from this phenomenon.

Date: 2019
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-mac
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