Determinants of Relative Sectoral Prices: The Role of Demographic Change

Max Groneck*, Christoph Kaufmann

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

4 Citations (Scopus)

Abstract

Demographic change raises demand for non-tradable old-age related services relative to tradable commodities. This demand shift increases the relative price of non-tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand affects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries, we estimate a robust increase of relative prices. According to our main estimate, up to one fifth of the average increase in relative prices between 1970 and 2009 can be attributed to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.

Original languageEnglish
Pages (from-to)319-347
Number of pages29
JournalOxford Bulletin of Economics and Statistics
Volume79
Issue number3
DOIs
Publication statusPublished - Jun-2017
Externally publishedYes

Keywords

  • Relative prices
  • Traded and Nontraded Goods
  • PANEL-DATA
  • REAL EXCHANGE-RATE
  • Demographic Change

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