Posts tagged demographics
The Life Cycle Hypothesis

Depending on the wording, a search on Google Scholar for papers and research on the link between macroeconomics and demographics yields anywhere between 20,000 and 100,000 results. This is an unhelpful start for someone looking to explore and understand the field. This essay aims to rectify this issue by tracing the origins of the life cycle hypothesis (LCH)—ground zero for linking macroeconomics and demographics—through a close inspection of the 1950s literature that gave birth to the theory. It is motivated by the idea that anyone who wishes to explore this topic needs to have a firm grasp of the original material. A lot can be said for getting the basics right, and this essay is an ode to that idea.

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Eulogy for a cycle

This essay is full of contradictions and loose ends, so I might as well start with one in the title. This cycle is not over yet, and I am not sure that I have the definitive answer for when it will end. It is, however, well advanced with some themes and narratives. I am writing this in an attempt to make sense of and to explain, a world, which to my despair is increasingly devoid of reason. As a finance geek, I can’t get anywhere without first establishing the state of play in the economy and markets. The most salient feature since the financial crisis has been the unprecedented activism of monetary policy. In 2006, Alan Blinder described central banking in the 21st century. It is a brilliant paper but in dire need of an update given actions taken by policymakers since 2008.  Central bankers were first called into action to prevent a collapse. The destruction in markets after Lehman’s failure showed that timidity or firmness in the face of moral hazard risk was impossible. Interbank markets were seizing up, banks were running out of liquidity, and the chaos quickly was spreading to the real economy.  Decisive action was needed to avoid the situation spiralling out of control. Central banks had to take their role as lenders of last resort seriously.

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It's the fertility, stupid

Seven years ago I did a thesis on demographics and capital flows, which informs my thinking on economics and finance to this day. That’s a long time ago, though, so I thought that I would provide an update on one of the key pillars of that work. It starts with ageing. The breadth and speed of population ageing currently sweeping the global economy is unprecedented in human history. It is partly driven by rising life expectancy, which we can crudely hold to be a linear function of economic development. But it is also a result of a complex fertility transition. Two stylised facts should be highlighted at the outset. Firstly, the demographic transition does not end with a homeostatic “equilibrium” of replacement level fertility. Secondly, the decline in fertility seems to be driven by two forces; the quantum effect which operates on a quantity/quality trade-off and the tempo effect, which is the phenomenon of “missing births” as women postpone having their first child. The two are connected in complex ways, that we probably don’t quite understand. My goal here is to understand what is happening to global fertility rates. My sample is the World Bank’s data and their estimates of total fertility rates across countries. 

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