How the baby boomers' retirement wave distorts model-based output gap estimates
- The paper illustrates based on an example the importance of consistency between the empirical measurement and the concept of variables in estimated macroeconomic models. Since standard New Keynesian models do not account for demographic trends and sectoral shifts, the authors proposes adjusting hours worked per capita used to estimate such models accordingly to enhance the consistency between the data and the model. Without this adjustment, low frequency shifts in hours lead to unreasonable trends in the output gap, caused by the close link between hours and the output gap in such models. The retirement wave of baby boomers, for example, lowers U.S. aggregate hours per capita, which leads to erroneous permanently negative output gap estimates following the Great Recession. After correcting hours for changes in the age composition, the estimated output gap closes gradually instead following the years after the Great Recession.
| Author: | Maik Hendrik WoltersORCiDGND |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-475955 |
| URL: | https://www.imfs-frankfurt.de/de/forschung/imfs-working-papers/ |
| Parent Title (English): | Working paper series / Institute for Monetary and Financial Stability ; 121 |
| Series (Serial Number): | Working paper series / Institute for Monetary and Financial Stability (121) |
| Publisher: | Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2018 |
| Year of first Publication: | 2018 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2018/09/27 |
| Tag: | Bayesian estimation; DSGE models; demographic trends; hours per capita measurement; low frequency trends; output gap estimates |
| Page Number: | 25 |
| HeBIS-PPN: | 439413273 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
