does demographic change affect the current strongaccountstrong a.pdfVIP

ISSN 1833-4474 Does Demographic Change Affect the Current Account? A Reconsideration # a,* b, c Michael Graff, Kam Ki Tang, Jie Zhang This paper re-examines the impact of demographic factors on the current account balance. To this end, we develop an analytical framework that is more general than the one commonly used in the literature in three aspects. First, it accounts for the facts that the world current account balance must be equal to zero. Second, a bigger economy will have greater impacts on others, but be influenced less by them. Third, a more open economy will have greater impacts on others and at the same time be more readily influenced by them. We then confront two alternative empirical specifications based on both the new and the conventional framework with a panel of data. In contrast to the findings based on the conventional framework, our results with the new framework indicate that population ageing does not appear to have discernible impacts on the current account balance. Key words: Demography, ageing, openness, current account, general equilibrium JEL Classification: F30, J10 a ETH Zürich, Switzerland and Jacobs University, Bremen, Germany b University of Queensland, Australia c National University of Singapore, Singapore * Corresponding author. Prof. Dr. Michael Graff ETH Zurich KOF, ETH Zentrum WEH CH-8092 Zurich Switzerland graff@kof.ethz.ch # The authors would like to acknowledge the support from the Australian Research Councils Discovery Projects funding scheme (project number DP0878752).