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Demographic change and natural interest rate of China

Author

Listed:
  • Fu, Buben
  • Wang, Bin

Abstract

We study the impact of demographic change on the natural interest rate of China. We analyze the effect of aging population by constructing an overlapping generations model, which embeds demographics, technology and public debt to facilitate simulating China’s natural interest rate and its counterfactuals. We find that China’s natural interest rate has been declining slowly ever since 2000 and the main driver of this downward trend is the declining mortality rate. In the next two decades, due to increasing young labor, China’s natural interest rate will have a flat period of about ten years in the downward trend.

Suggested Citation

  • Fu, Buben & Wang, Bin, 2024. "Demographic change and natural interest rate of China," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323011844
    DOI: 10.1016/j.frl.2023.104812
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    References listed on IDEAS

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    More about this item

    Keywords

    Demographics; Natural interest rate; Population aging;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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