Title: The effect of demographic changes on real interest rates: theory and empirical evidence from the OECD

Authors: Kristine Gevorgyan

Addresses: Department of Monetary Theory and Policy, Prague University of Economics and Business, nám. Winstona Churchilla 1938/4, 120 00 Praha 3-Žižkov, Czech Republic

Abstract: Do demographic changes affect the real interest rates? Using an analytical three-period overlapping generation model (OLG) we show that the equilibrium real interest rate increases when the fertility and the mortality rates are higher. A larger share of younger population in the economy increases the demand for loans which subsequently increases the real interest rate. We empirically confirm these relationships using cross-country regressions with data on long-term real interest rates, fertility, and mortality rates from the OECD.

Keywords: real interest rates; demographics; aging population; overlapping generations model; cross-country regressions.

DOI: 10.1504/IJMEF.2024.144130

International Journal of Monetary Economics and Finance, 2024 Vol.17 No.5, pp.376 - 392

Received: 01 Aug 2021
Accepted: 08 Nov 2022
Published online: 28 Jan 2025 *

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