Demographic change and the German current account surplus

Matthias Schön

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: This paper analyses whether the severe demographic change in Germany causes its high current account surpluses. An ageing population both increases the supply and lowers demand of capital in an economy. Due to a longer life span individuals save more. Fewer workers reduce the optimal capital stock. In addition, there are positive or negative effects on (net) foreign assets depending on how existing public pay as you go pension systems adjust in an ageing society. According to a two region model with endogenous savings, labour supply and a bequest motive that is augmented with actual demographic data projections for OECD countries, the demographic change is a key determinant of the current account. However, it cannot fully account for the magnitude of the recent German surplus. The simulation results further indicate that both a higher retirement age and a fixed pension level with a rising contribution rate reduce foreign assets. If the contribution rate is fixed and the pension level lowered to accommodate this, foreign assets increase.

Keywords: demographic change; current account; capital markets; pension system; OLG models (search for similar items in EconPapers)
JEL-codes: F21 H55 J11 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-age, nep-dem and nep-opm
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https://www.econstor.eu/bitstream/10419/203527/1/VfS-2019-pid-26951.pdf (application/pdf)

Related works:
Working Paper: Demographic change and the German current account surplus (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203527

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