Medium-run implications of changing demographic structures for the macro-economy

Publication date: 2 Aug 2017 | Publication type: National Institute Economic Review | Theme: Macroeconomics | External Author(s): Aksoy, Y; Basso, H S; Smith, R P | JEL Classification: E32, J11 | Journal: National Institute Economic Review Issue 241 | Publisher: Sage Publications, London

While there may be an important, but transitory, cyclical component in the poor performance of the past decade, we will emphasise the secular forces: the impact of demographic structure and innovation. We draw on the empirical and theoretical work reported in Aksoy, Basso, Smith and Grasl (2015), ABSG, about the impact of changes in demographic structure on macroeconomic outcomes. This suggests that changes in age profile not only have significant implications for savings, investment, real interest rates and growth but also for innovation. The size of the effects seems plausible. For instance, if in 2015 the UK had the 1970 age structure, it would have added 0.68 percentage points to the long-run annual growth rate. The model suggests that the population ageing predicted for the next decades will tend to reduce output growth and real interest rates across OECD countries.

Keyword tags: 
population age profile
output growth
Kuznets cycles

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