Keywords: Capital flows, demographic transitions, current account dynamics.
Abstract: The standard life-cycle model of consumption behavior predicts that a household's
age will influence its saving behavior. Moreover, simple national accounting identities
reveal that a country's current account balance reflects its savings-investment imbalance.
Thus, differences in national age-profiles should affect the current account. To
test this theory's plausibility and significance, I simulate a multi-region overlapping
generations model that is calibrated to match the demographic differences among the
major industrialized countries over the past 50 years. In the model, it is found that
these differences can explain some of the observed long-term capital movements in the
G-7. In particular, the model does a good job of predicting the size and timing of
American current account deficits as well as Japanese current account surpluses.
Full paper (237 KB PDF)
Home | FEDS | List of 2003 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: November 17, 2003