Mortality Modeling: Lee-Carter and the Macroeconomy

Abstract:     
Based on data for six OECD countries, the relationship between macroeconomic conditions and the mortality index kt in the popular Lee-Carter model is studied. For the period 1950–2006, significant procyclical correlations are found for Australia, Canada, the Netherlands, the United Kingdom, and the United States for the age group 0–99 and for four age subgroups. For Japan, significant countercyclical fluctuations are observed for males and females in the age group 25–44. Further analysis reveals that the link between the economy and mortality is subject to change in all six countries, possibly due to changes in the underlying causes of death. For the period 1980–2006, no clear relationship can be identified across countries or age groups. Findings of this explorative study contribute to a better understanding of mortality dynamics and their modeling. They will furthermore lead towards a more comprehensive assessment of hedging potentials of mortality-linked financial products designed to transfer longevity risk to the capital market.

Keywords: stochastic mortality, Lee-Carter model, external factors

JEL Classifications: J11, E32

Working Paper Series