Relative Sectoral Prices and Population Ageing: A Common Trend
37 Pages Posted: 25 Feb 2014
Date Written: January 17, 2014
Demographic change raises demand for non-tradable old-age related services relative to tradable commodities. This demand shift increases the relative price of non-tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand a¤ects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries between 1970 and 2009, we estimate a robust increase of relative prices due to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.
Keywords: demographic change, relative price of non-tradables, real exchange rate
JEL Classification: J11, F41, E39
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