The Macroeconomics of Demographic Change - Essays on Economic Modelling

This thesis addresses the macroeconomic consequences of demographic change. In particular, it quantifies the effects of future labor shortage and capital abundance on international capital markets. To this end, a large-scale multi-country dynamic macroeconomic simulation model is developed. Chapter 1 gives a brief introduction to the various interactions between demographic change and international capital markets and asks the economic questions that motivate the analysis. The main features of the multi-country simulation model are developed in Chapter 2. Chapter 3 presents a new solution method for such large-scale general equilibrium models that extends and improves upon earlier methods used in the literature. Starting from methods used in the “real business cycles” literature, Chapter 4 develops a new method for the choice of structural model parameters and for the test of the particular type of large-scale simulation models developed in this thesis (calibration). Simulation results on the effects of demographic transitions on international capital markets in the presence of pay-as-you-go (PAYG) public pension arrangements and the effects of fundamental pension reforms are presented in Chapter 5. Finally, Chapter 6 discusses the roles of various model features and concludes the analysis by summarizing its main findings