Capital Flows Among the G-7 Nations: A Demographic Perspective

25 Pages Posted: 28 Dec 2003

See all articles by Michael Feroli

Michael Feroli

affiliation not provided to SSRN

Date Written: October 2003

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.

Keywords: Capital flows, demographic transitions, current account dynamics

JEL Classification: F21, F47, J10

Suggested Citation

Feroli, Michael, Capital Flows Among the G-7 Nations: A Demographic Perspective (October 2003). Available at SSRN: https://ssrn.com/abstract=481643 or http://dx.doi.org/10.2139/ssrn.481643

Michael Feroli (Contact Author)

affiliation not provided to SSRN

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