Global Aging and Declining World Interest Rates : Macroeconomic Insurance Through Pension Reform in Cyprus.

By: Hoffmaister, Alexander WContributor(s): Guajardo, Jaime | Catalán, MarioMaterial type: TextTextSeries: IMF Working PapersPublisher: Washington : International Monetary Fund, 2008Copyright date: ©2008Description: 1 online resource (42 pages)Content type: text Media type: computer Carrier type: online resourceISBN: 9781451914139Subject(s): Interest rates -- Cyprus -- Econometric models | Pensions -- Cyprus -- Econometric models | Population aging -- Cyprus -- Econometric modelsGenre/Form: Electronic books.Additional physical formats: Print version:: Global Aging and Declining World Interest Rates : Macroeconomic Insurance Through Pension Reform in CyprusDDC classification: 338.23580 LOC classification: HG1623.C93 -- C38 2008ebOnline resources: Click to View
Contents:
Intro -- Contents -- I. Introduction -- II. The Model -- A. Model Overview -- B. Households -- C. Firms -- D. The Government -- E. Equilibrium -- F. Balanced Growth Equilibrium and Calibration -- G. Demographic Transition -- III. Baseline Simulations -- A. Scenario 1: Constant World Interest Rates -- B. Scenarios 2 and 3: Declining World Interest Rates -- IV. Pension Reform Simulations -- A. Description of Pension Reforms -- B. Simulation Results for Constant Interest Rates -- C. Pension Reform as Macroeconomic Insurance -- V. Conclusions -- Tables -- 1. Variable Definition and Notation -- 2. Household's Optimization Problems -- 3. First Order Conditions-Private Household's Optimization Problem -- 4. First Order Conditions-Public Household's Optimization Problem -- 5. Calibration of the Model -- 6. Pension Expenditure Reductions from Reforms -- Figures -- 1. Labor Skills Profile by Age -- 2. Health Care Expenditure by Age Group -- 3. Dependency Ratio in Model: Retired over Working Population -- 4. Macroeconomic Results-Baseline Scenarios under Constant and Variable Interest Rates. -- 5. Macroeconomic Results-Reform Scenarios under Constant and Variable Interest Rates .. -- 6. Decomposition of Pension Expenditure-to-GNI-Ratios-Pension Reform and Interest Rate Scenarios -- References.
Summary: How will the world-wide decline in real interest rates associated with global aging affect small open economies (SOEs) with aging populations? Lower interest rates will result in higher capital-labor ratios and increased wages; higher wages, in turn, will be passed on to pension benefits, exacerbating aging-related fiscal pressures. The pass-through effect will be stronger if pensions are indexed to nominal wages rather than prices. Using an overlapping generations model, the paper illustrates the interest rates transmission mechanism and its interaction with pension indexation for the case of Cyprus. In addition, the paper evaluates the capacity of pension reforms to insure the economy against long-run movements in world interest rates. It concludes that pension reforms, particularly those that change the indexation of pensions from wages to prices, provide substantial macro-insurance and shock absorption benefits.
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Intro -- Contents -- I. Introduction -- II. The Model -- A. Model Overview -- B. Households -- C. Firms -- D. The Government -- E. Equilibrium -- F. Balanced Growth Equilibrium and Calibration -- G. Demographic Transition -- III. Baseline Simulations -- A. Scenario 1: Constant World Interest Rates -- B. Scenarios 2 and 3: Declining World Interest Rates -- IV. Pension Reform Simulations -- A. Description of Pension Reforms -- B. Simulation Results for Constant Interest Rates -- C. Pension Reform as Macroeconomic Insurance -- V. Conclusions -- Tables -- 1. Variable Definition and Notation -- 2. Household's Optimization Problems -- 3. First Order Conditions-Private Household's Optimization Problem -- 4. First Order Conditions-Public Household's Optimization Problem -- 5. Calibration of the Model -- 6. Pension Expenditure Reductions from Reforms -- Figures -- 1. Labor Skills Profile by Age -- 2. Health Care Expenditure by Age Group -- 3. Dependency Ratio in Model: Retired over Working Population -- 4. Macroeconomic Results-Baseline Scenarios under Constant and Variable Interest Rates. -- 5. Macroeconomic Results-Reform Scenarios under Constant and Variable Interest Rates .. -- 6. Decomposition of Pension Expenditure-to-GNI-Ratios-Pension Reform and Interest Rate Scenarios -- References.

How will the world-wide decline in real interest rates associated with global aging affect small open economies (SOEs) with aging populations? Lower interest rates will result in higher capital-labor ratios and increased wages; higher wages, in turn, will be passed on to pension benefits, exacerbating aging-related fiscal pressures. The pass-through effect will be stronger if pensions are indexed to nominal wages rather than prices. Using an overlapping generations model, the paper illustrates the interest rates transmission mechanism and its interaction with pension indexation for the case of Cyprus. In addition, the paper evaluates the capacity of pension reforms to insure the economy against long-run movements in world interest rates. It concludes that pension reforms, particularly those that change the indexation of pensions from wages to prices, provide substantial macro-insurance and shock absorption benefits.

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Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2018. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.

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