Long-Run Trends in Demographics, Income Inequality, and the Natural Rate of Interest: Further Evidence

19 Pages Posted: 3 Nov 2021

See all articles by Carlo A. Favero

Carlo A. Favero

Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Slađana Krgović

Bocconi University

Alessandro Melone

Vienna Graduate School of Finance (VGSF)

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: November 2, 2021

Abstract

Trends in demographics and income inequality have been considered as explanations for the drift in the natural rate of interest. The conclusion reached so far is that, while time-series evidence is not decisive, microeconomic evidence challenges demographics (Mian, Straub, and Sufi, 2021). We confirm, via cointegration analysis and estimation of interest rate rules, the difficulties of finding decisive evidence in a time-series approach. However, further consideration of the microeconomic evidence not only does not challenge the demographic interpretation of the trend, but also suggests that the rise in income inequality is partially explained by demographics.

Keywords: Monetary Policy Rule, Secular Trends, Demographics, Income Inequality

JEL Classification: E43, E52, G12

Suggested Citation

Favero, Carlo A. and Krgović, Slađana and Melone, Alessandro and Tamoni, Andrea, Long-Run Trends in Demographics, Income Inequality, and the Natural Rate of Interest: Further Evidence (November 2, 2021). Available at SSRN: https://ssrn.com/abstract=3955151 or http://dx.doi.org/10.2139/ssrn.3955151

Carlo A. Favero (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://www.igier.unibocconi.it\favero

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Slađana Krgović

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Alessandro Melone

Vienna Graduate School of Finance (VGSF) ( email )

WU Vienna
Welthandelsplatz 1
Vienna, 1020
Austria

HOME PAGE: http://https://sites.google.com/view/alessandro-melone/home

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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