{"title":"Estimating the effects of demographics on interest rates: A robust Bayesian perspective","authors":"Paul Ho","doi":"10.1016/j.jedc.2023.104772","DOIUrl":null,"url":null,"abstract":"<div><p><span><span>We highlight a reason for the vast range of estimates for the effect of demographics on interest rates: the magnitudes are not well-identified without often omitted data on capital and life-cycle consumption. Using nonparametric prior sensitivity analysis for an overlapping generations model estimated through </span>Bayesian methods, we show small changes in the prior for the discount rate, intertemporal </span>elasticity<span> of substitution, and depreciation rate can shift posterior quantiles for the effects of demographics by up to 1.5 percentage points. Capital-output ratio data substantially tighten estimates of the depreciation rate but not the discount rate. Life-cycle consumption is especially informative about the intertemporal elasticity of substitution.</span></p></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":null,"pages":null},"PeriodicalIF":1.9000,"publicationDate":"2023-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Economic Dynamics & Control","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0165188923001781","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
We highlight a reason for the vast range of estimates for the effect of demographics on interest rates: the magnitudes are not well-identified without often omitted data on capital and life-cycle consumption. Using nonparametric prior sensitivity analysis for an overlapping generations model estimated through Bayesian methods, we show small changes in the prior for the discount rate, intertemporal elasticity of substitution, and depreciation rate can shift posterior quantiles for the effects of demographics by up to 1.5 percentage points. Capital-output ratio data substantially tighten estimates of the depreciation rate but not the discount rate. Life-cycle consumption is especially informative about the intertemporal elasticity of substitution.
期刊介绍:
The journal provides an outlet for publication of research concerning all theoretical and empirical aspects of economic dynamics and control as well as the development and use of computational methods in economics and finance. Contributions regarding computational methods may include, but are not restricted to, artificial intelligence, databases, decision support systems, genetic algorithms, modelling languages, neural networks, numerical algorithms for optimization, control and equilibria, parallel computing and qualitative reasoning.