Population Ageing and the Macroeconomy

Abstract

We quantify the impact of demographic change on real interest rates, house prices and household debt in an overlapping-generations model. Falling birth and death rates across advanced economies can explain much of the observed fall in real interest rates and the rise in house prices and household debt. Since households maintain relatively high wealth levels throughout retirement, these trends will persist as population ageing continues. Countries ageing relatively slowly, like the US, will increasingly accumulate net foreign liabilities. The availability of housing as an alternative store of value attenuates these trends, while raising the retirement age has limited effects.

Keywords: demographics, ageing, natural interest rates, macroeconomic trends

JEL Classification: E21; E43; E13; J11