Browsing by Subject "J11"

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  • Saarenheimo, Tuomas (2005)
    Bank of Finland Research Discussion Papers 2/2005
    The median age of the global population is presently increasing by nearly three months every year.Over the next couple of decades, almost every country in the world is set to experience an unprecedented increase in the share of elderly population.This development has the potential to fundamentally affect the functioning of economic and financial systems globally.This study concentrates on the effects of ageing on the evolution of global interest rates and financial flows.The study uses a 73-cohort general equilibrium overlapping generations model of five major economic areas (USA, EU-15, Japan, China, and India).Utilising actual population data and UN population projections, the model yields predictions for major economic and financial variables up to 2050.The model predicts a decline in global equilibrium real interest rates over the next two decades, but the size of the decline depends crucially on the future evolution of public pension benefits.If the present generosity of pension systems is maintained - leading to a steep increase in the cost of the pension systems - the maximum decline of interest rates is projected to be about 70 basis points from present levels.If pension benefits are reduced to offset the increasing cost pressures, the decline in global equilibrium interest rates can be much larger, while increases in the retirement age work in the opposite direction.The results do not anticipate a 'financial market meltdown' - a collapse in asset prices associated with the retirement of the baby-boomers - predicted by some.On the contrary, bond prices should fare fairly well over the next three decades.The main reason for this is that increasing life expectancy at retirement creates a need for higher retirement saving - in the future, people will want to retire wealthier than they do today.This trend more than offsets the negative effect of the retirement of baby-boomers on asset demand.Key words: Ageing, real interest rates, financial flows, public pension systems JEL classification numbers: J11, E44
  • Kinnunen, Helvi (2008)
    Bank of Finland Research Discussion Papers 21/2008
    Ilmestynyt myös VATT Publications 58/2011.
    This paper investigates public pension funding using a dynamic general equilibrium macroeconomic model (DSGE) that facilitates investigation of distortionary effects of fiscal and pension policy responses to ageing. The model is calibrated to the Finnish economy, which will encounter substantial ageing pressures in the near future. During the transition to an older population structure ageing costs can be substantially lowered by allowing public funds to smooth out the tax responses. Cutting down on pension prefunding at a time when the pace of ageing is at its peak reduces the necessary tax hikes and stimulates labour supply growth at the moment when the labour market is tightest. With smaller funding needs, ageing leads to a slower growth in labour costs, a better employment conditions and faster production growth. Keywords: ageing, general equilibrium, public finance, government funds JEL classification numbers: E13, H55, J11, J26
  • Juselius, Mikael; Takáts, Előd (2021)
    Journal of Economic Dynamics and Control July
    Published in BoF DP 8/2018.
    Demography accounts for a large share of low frequency inflation variation in 22 countries from 1870 to 2016. The dependent population (young and old) is associated with higher, and the working age population with lower inflation. The relationship is robust across different sub-samples and specifications, including dynamic Phillips curve settings, suggesting that it is not spurious. The observed pattern is broadly consistent with delayed monetary policy responses to demography-induced changes in the natural interest rate.
  • Kilponen, Juha; Kinnunen, Helvi; Ripatti, Antti (2006)
    Bank of Finland Research Discussion Papers 28/2006
    This paper extends Gertler's (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure.The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing.When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, population ageing has clearly much larger effects on public finance, when compared to mechanical sustainability calculations.Stochastic simulations suggest that lengthening of working time has only a modest alleviating effect on the fiscal burden of ageing.This is due to the fact that stochastic variation in the length of working time has only a relatively small effect on the model's dependency ratio.Variation in life expectancy is clearly much more important. Key words: ageing, general equilibrium, public finance, demographic uncertainty JEL classification numbers: E13, H55, J11, J26
  • Juselius, Mikael; Takáts, Előd (2016)
    Bank of Finland Research Discussion Papers 4/2016
    We uncover a puzzling link between low-frequency inflation and the population age-structure: the young and old (dependents) are inflationary whereas the working age population is disinflationary. The relationship is not spurious and holds for different specifications and controls in data from 22 advanced economies from 1955 to 2014. The age-structure effect is economically sizable, accounting eg for about 6.5 percentage points of US disinflation from 1975 to today’s low inflation environment. It also accounts for much of inflation persistence, which challenges traditional narratives of trend inflation. The age-structure effect is forecastable and will increase inflationary pressures over the coming decades.
  • Juselius, Mikael; Takáts, Előd (2018)
    Bank of Finland Research Discussion Papers 8/2018
    Published in Journal of Economic Dynamics and Control 2021 ; 128 ; July as 'Inflation and demography through time'
    Demographic shifts, such as population ageing, have been suggested as possible explanations for the recent decade-long spell of low inflation. We identify age structure effects on inflation from cross-country variation in a panel of 22 countries from 1870 to 2016 that includes standard monetary factors. We document a robust relationship that is in line with the lifecycle hypothesis: a larger share of dependent population is inflationary, whereas a larger share of working age population is disinflationary. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.
  • Kinnunen, Helvi (2002)
    Suomen Pankin keskustelualoitteita 28/2002
    Julkisen talouden rahoituspohjan kestävyys väestön vanhetessa on kiistaton ongelma Suomessa kuten useissa muissakin länsimaissa. Työikäisen väestön väheneminen, työvoiman ikääntyminen ja hyvin vanhojen ihmisten lukumäärän kasvu on vaikea yhdistelmä julkisen talouden kestävyyden näkökulmasta.Epäedulliseksi muuttuvalla ikärakenteella on pitkäaikaiset vaikutukset julkisen talouden tasapainoon ja liikkumavaraan.Suureksi jäänyt rakenteellinen työttömyys ja työvoiman keski-iän nousu lähivuosina heikentävät julkisten palveluiden rahoitusperustaa.Vuoteen 2004 saakka ulottuvan Suomen Pankin ennusteen jatkoksi tehdyt laskelmat osoittavat, että jos eläkkeelle hakeutuminen ei selvästi muutu, paineet verotuksen kiristämiseen lähivuosina ovat ilmeiset. Laskelmat osoittavat, että eläkeuudistus ei riitä purkamaan ikääntymisestä aiheutuvia verotuksen kiristämispaineita.Jos eläkeuudistuksen lisäksi julkisen palvelutuotannon tuottavuutta saataisiin kohennettua, ikääntyminen ei välttämättä johtaisi verotuksen kiristämiseen. väestön ikääntyminen, veroaste, eläkeuudistus, julkisen palvelutuotannon tehokkuus JEL-luokittelu: H55, H62, J11, J18