Wonderful feedback from both micro and macro
Today, we presented our paper on the interplay between demographics and unemployment during the macroeconomics labor market seminar at IAB/FAU in Nuremberg. With a great turnout, we faced some tough and inspiring questions concerning both the empirical motivation of our paper and the implications from our model. We have lots to work on! Thanks to Christian Merkel for inviting us, and for great questions to all participants.
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the considerable extent to which demographic changes over the last 30 years contribute to the decline of unemployment rate. Our findings have important policy implications given the expected aging of the working population in Europe. Furthermore, lowering inflation volatility is less costly in terms of higher unemployment volatility. It suggests that optimal monetary policy is more hawkish in the older society. Our results hint also at a partial reversal of the European-US unemployment puzzle due to the fact that in the US the share of young workers is expected to remain robust. The paper is coming soon!