Demographic Structure and Macroeconomic Trends

Abstract

We estimate the effect of changes in demographic structure on long-term trends of key macroeconomic variables using a panel VAR for 21 OECD economies from 1970 –2014. The panel data variation assists the identification of demographic effects, while the dynamic structure, incorporating multiple channels of influence, uncovers long-term effects. We propose a theoretical model, relating demographics, innovation, and growth, whose simulations match our empirical findings. The current trend of population aging and low fertility is projected to reduce output growth, investment, and real interest rates across OECD countries. (JEL E22, E23, E32, E43, J11, J13)