Population ageing, capital mobility and optimal saving

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jpolmod.2005.05.010 Byline: Ross S. Guest Keywords: Demographic economics; Saving; Consumption Abstract: This paper reports simulations of the effect of fertility on optimal saving and consumption under three assumptions about capital mobility: zero, perfect and imperfect. The case of imperfect capital mobility is modeled by expressing the interest rate as a function of the level of foreign liabilities. Simulations show that even a small degree of responsiveness of the interest rate to the level of foreign liabilities is sufficient to generate optimal paths of consumption and saving that are very close to the paths for a closed economy. The results of the simulations suggest that, with an exogenous rate of technical progress, the effect of a lower fertility rate on social welfare is not likely to be significantly welfare-reducing. Author Affiliation: Griffith Business School, Griffith University, PMB 50, Gold Coast Mail Centre, Qld, Australia Article History: Received 1 January 2004; Revised 1 September 2004; Accepted 1 May 2005