A BEJM Advances article.

Abstract

In this paper I explore the quantitative implications for savings of population aging. In doing so, I pay particular attention to some features that have been partially over-looked in the literature. These features include the details of the population aging process, the initial conditions with respect to assets holdings, and the relation between age and household size. In order to do so, I develop recursive methods capable of dealing with overlapping generations environments where the population is stochastic.

The main findings are: i) If population patterns revert to the averages of the last 50 years, the reduction in aggregate savings due to changes in the age structure of the population is small. ii) If, however, the demographic process is such that fertility patterns remain at their current low levels, then the effects of the aging of the baby boom are very large. iii) Initial conditions matter: both the choice for initial assets and the choice for the mechanism through which current fertility reverts to its long run average have implications for the economic allocations. And iv) The contribution of general equilibrium effects is to exacerbate the reduction of savings since population aging tends to make labor relatively scarce, and, therefore, to reduce rates of return of capital, which in turn reduces savings even further.

Submitted: October 13, 2000 · Accepted: April 6, 2001 · Published: May 3, 2001

Originally published in Advances in Macroeconomics.

Recommended Citation

Ríos-Rull, José-Víctor (2001) "Population Changes and Capital Accumulation: The Aging of the Baby Boom ," Advances in Macroeconomics: Vol. 1 : Iss. 1, Article 7.
Available at: http://www.bepress.com/bejm/advances/vol1/iss1/art7