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Wealth and Demographics in the 21st Century

Author

Listed:
  • Adrien Auclert

    (Stanford)

  • Frederic Martenet

    (Stanford University)

  • Hannes Malmberg

    (University of Minnesota)

Abstract

Macroeconomists agree that population aging is likely to reduce equilibrium real interest rates. However, there is disagreement regarding the magnitude of this effect, and the mechanisms through which it operates. In this paper, we reconsider the pressure of demographic change on interest rates. Using a rich overlapping generation model, we show that this effect can be expressed as a function of a few interpretable elasticities. We calculate some of these elasticities directly using empirical age-wealth profiles and projected population age distributions. Our results suggest that, if interest rates were to remain constant, the twenty-first century would see a very large increase in the wealth-to-GDP ratios of rich countries. We use our decomposition framework to guide our calibration of the remaining parameters of our model and to bound the decline in equilibrium interest rates we should expect from this phenomenon.

Suggested Citation

  • Adrien Auclert & Frederic Martenet & Hannes Malmberg, 2019. "Wealth and Demographics in the 21st Century," 2019 Meeting Papers 952, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:952
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    Cited by:

    1. Benjamin Moll & Lukasz Rachel & Pascual Restrepo, 2022. "Uneven Growth: Automation's Impact on Income and Wealth Inequality," Econometrica, Econometric Society, vol. 90(6), pages 2645-2683, November.
    2. Atif Mian & Ludwig Straub & Amir Sufi, 2021. "Indebted Demand," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(4), pages 2243-2307.
    3. Cooley, Thomas F. & Henriksen, Espen & Nusbaum, Charlie, 2024. "Demographic obstacles to European growth," European Economic Review, Elsevier, vol. 169(C).
    4. Amaral, Pedro S., 2023. "The demographic transition and the asset supply channel," European Economic Review, Elsevier, vol. 151(C).
    5. Adriana Grasso & Juan Passadore & Facundo Piguillem, 2024. "The Macroeconomics of Hedging Income Shares," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 54, October.
    6. Facundo Piguillem & Guillermo Ordonez, 2015. "Retirement in the Shadow (Banking)," 2015 Meeting Papers 1200, Society for Economic Dynamics.

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