Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208292
Authors: 
Papetti, Andrea
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2258
Abstract: 
This paper employs an aggregate representation of an overlapping generation (OLG) model quantifying a decrease of the natural real interest rate in the range of -1.7 and -0.4 percentage points in the euro area between 1990 and 2030 due to demographics alone. Two channels contribute to this downward impact: the increasing scarcity of effective labor input and the increasing willingness to save by individuals due to longer life expectancy. The decrease of the aggregate saving rate as individuals retire has an upward impact which is never strong enough. Mitigating factors are: higher substitutability between labor and capital, higher intertemporal elasticity of substitution in consumption, reforms aiming at increasing the relative productivity of older cohorts, the participation rate and the retirement age. The simulated path of the natural real interest rate is consistent with recent econometric estimates: an upward trend in the 70s and 80s and a prolonged decline afterward.
Subjects: 
demographic transition
aging
natural interest rate
secular stagnation
euro area
JEL: 
E17
E21
E43
E52
J11
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3520-3
Document Type: 
Working Paper

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