Understanding the New Normal: The Role of Demographics

IMF Economic Review, 2016

145 citations recorded by the source corpus.

We calibrate an overlapping-generations model with a rich demographic structure to observed and projected changes in U.S. population, family composition, life expectancy, and labor market activity. The model indicates that demographic factors associated with the post-war baby boom pushed up real interest rates and real gross domestic product (GDP) growth from 1960 to the 1980s. Since the 1980s, the model accounts for a little more than a 1-percentage-point decline in both real GDP growth and real interest rates—much of the permanent declines in those variables according to some estimates. Our model predicts GDP growth and interest rates will remain low by historical standards, consistent with a “new normal” for the U.S. economy.

Subfields: Accounting, Demography, General Health Professions

View Paper: https://www.semanticscholar.org/paper/1e451b2ad8c33da1e0e93bfd618cec8f95037b4c

Citations in the corpus

• Some Evidence on Secular Drivers of US Safe Real Rates (2017, unknown): “An increase in the dependency ratio will shift the savings schedule in, thus raising r (Gagnon, Johannsen, and López-Salido 2016); an increase of the fraction middle aged will work in the opposite direction.”
• Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence (2019, unknown): “Carvalho, Ferrero, and Nechio (2016) and Gagnon, Johannsen, and Lopez-Salido (2016) show that demographic forces likely explain much of the decline in long-term real rates.”