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Demographic and Economic Uncertainties in a large scale computable OLG model.

By Jean Chateau

Abstract

This paper considers aggregate risks in a large-scale overlapping-generations model that is calibrated to France demographic and economic properties. Two distinct sources of uncertainty are assumed: fertility and technological shocks. The paper deals with two distinct issues. This first part of the paper is devoted to business cycle issues. The main finding is that when both sources of shocks are considered together the correlation between hours worked and productivity of hours worked of the model reproduces the one of the French data. The paper also explores the importance of considering the existence of social security system to retirement to reproduce to the business cycle. The second part of the paper explores the effects of adopting different rules of adjustment to insure budget equilibrium of the Pay-as-you-system. This analysis first shows that defined-contribution rules induces more volatility of output but defined-benefit rules imply greater volatility of consumption relative to output. It also indicates that consumption risk-sharing among cohorts vary both with respect to the origins of the surrounding uncertainties and to the chosen adjustment rule

Topics: Stochastic births, Overlapping generations, Business cycles, Social security
Year: 2003
OAI identifier: oai:CiteSeerX.psu:10.1.1.195.3334
Provided by: CiteSeerX
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