Swedish post-war economic development: The role of age structure
2000 (English)Conference paper (Other academic)
There are strong life cycle patterns in practically all human behavior as well as in the resources and capabilities of individuals. Variations in the age structure of the population therefore affect all aspects of the aggregate economy, not only saving as is generally recognized. The impact in a given economy, however, also depends institutions and economic policy. Swedish post-war development exhibit patterns of age structure effects on saving, growth, investment, current account and inflation that are consistent with the dynamics of these variables in business cycles, only these effects apply to much longer periods than the common business cycle. We present estimations of these effects and show that the deviations of actual time series from the model predictions are consistent with the institutional detail of economic policy and its fluctuating directions over the post-war period. The poor performance of the Swedish economy during the period 1975-1995 can partly be explained by inappropriate policies working against the underlying age structure changes. For example, the rapid expansion of non-working elders in the population in the 1980s simultaneous with the depletion of the more experienced part of the older work force would according to our estimates put strong downward pressure on the budget deficit and the current account. Policy aimed at current account balance, mainly by a series of devaluations in the early 1980s did succeed in improving the current account. The cost of this was a serious overheating of the economy in the end of the 1980s since fundamental behavior and resources in the population did not back it. The attempts to nevertheless fix the exchange rate at an unrealistically high level (the price of a dollar in 1992 was close to half of today’s rate) led into a serious crisis and depression in the beginning of the 1990s. Our conclusion is that it is a serious mistake both for policy and macroeconomic modeling to ignore the general equilibrium effects of changing age distributions.
Place, publisher, year, edition, pages
Research subject Economics
IdentifiersURN: urn:nbn:se:su:diva-125521OAI: oai:DiVA.org:su-125521DiVA: diva2:893668
"Population dynamics and the macro economy", Harvard center for population and development studies