ECB discusses ageing

In its Occasional Paper 51 - Macroeconomic implications of demographic developments in the Euro area, the European Central Bank looks at the impact of ageing on long term growth rates, labour market policies, financial markets and public finance. The thrust of measures proposed is not surprising:

to increase labour participation by closing a gender gap, raising average hours worked and raising the effective retirement age,

to prepare for a more important role of financial intermediation in retirement provision, taking into account an expected further decline in the real equilibrium interest rate,

to take measures against public expenditures rising above 3% of GDP in most countries in the wake of increased pensions and healthcare costs, especially by increasing the importance of (partially) funded retirement systems,

to monitor the impact of ageing on monetary policy via the aggregate savings rate and real interest rates.

Disquietingly, the ECB does not fully discount the theory that ageing will lead to a decline in asset prices due to increased unsaving of retirees - it only provides several technical caveats. Food for thought indeed!