Understanding the New Normal: The Role of Demographics.

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From: IMF Economic Review(Vol. 69, Issue 2)
Publisher: Palgrave Macmillan Ltd. (Springer)
Document Type: Report
Length: 14,188 words
Lexile Measure: 1600L

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Abstract :

We calibrate an overlapping-generations model with a rich demographic structure to observed and projected changes in U.S. population, family composition, life expectancy, and labor market activity. The model indicates that demographic factors associated with the post-war baby boom pushed up real interest rates and real gross domestic product (GDP) growth from 1960 to the 1980s. Since the 1980s, the model accounts for a little more than a 1-percentage-point decline in both real GDP growth and real interest rates--much of the permanent declines in those variables according to some estimates. Our model predicts GDP growth and interest rates will remain low by historical standards, consistent with a "new normal" for the U.S. economy. JEL Classification E17 * E21 * J11

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Gale Document Number: GALE|A666229973