INGENUE Model (CEPII - CEPREMAP - OFCE)

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INGENUE Model (CEPII - CEPREMAP - OFCE)

• Scenarios for global ageing
• An investigation with the
• INGENUE 2 world model

Vladimir Borgy (CEPII) AGIR Conference Brussels
- march 2005
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INGENUE Model (CEPII - CEPREMAP - OFCE)

• Goal of the INGENUE project
• To analyse quantitatively international capital
  flows and growth dynamics induced by differential
  ageing of the various regions of the world.
• Tool
• An applied international general equilibrium
  model with overlapping generations of rational
  households

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INGENUE Model (CEPII - CEPREMAP - OFCE)

• AGIR project
• To analyse the macroeconomic consequences of
• pensions reforms in Western Europe in this world
  model.
• Migratory scenario that we could compare with
  the pension reform.

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Demographic projections point to the appearance
of two groups of regions in terms of population
growth rate
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The ageing process is not synchronous OECD
countries will be the first to experience large
increase in their dependency ratio.
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The proportion of high savers in total population
follows a wave pattern that propagates from one
region to the next through the decades.
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The theoretical framework of the Ingenue 2 model
(1)
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World Regions Ingenue 2.
Western Europe Eastern Europe North
America Japan Mediterranean World Chinese
World Africa Russian World Indian World South
America
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The theoretical framework of the Ingenue 2
model (2)
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The theoretical framework of the Ingenue 2 model
(3)
Utilization of the regional final good
Production of the regional final good
Production of the regional final good
Production of the world good
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The theoretical framework of the Ingenue 2
model (4)
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Growth, technological diffusion and economic
convergence

• The level of Total Factor Productivity is
  exogenous.
• Before 2000, it is given by historical data.
• After this date, the rate of growth of TFP is the
  result of
• 1. A given exogenous growth of 1.5 for the
  technological leader
• 2. A region specific exogenous catching-up
  factor, reflecting international diffusion of
  technological progress with a specific law of
  diffusion

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In the baseline scenario, three regions are
catching up at a sustained pace Eastern Europe,
Chinese and Indian World
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baseline scenario general slowdown in growth
because the working age population growth rate
diminishes in all regions but Africa.
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baseline scenario the world Saving-Investment
equilibrium is tilted more and more toward a
lower equilibrium rate.
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baseline scenario the downward trend profile of
interest rates is due to global ageing.
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baseline scenario real exchange rate appreciate
relatively to North America in the two regions
that have an ownership ratio higher than N.
America.
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baseline scenario improvement of N. America
cur. account with the increase in saving.
Decrease of cur. account surplus in W. Europe
and Japan with ageing.
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Main features of the baseline scenario for
Western Europe during the first half of the 21st
century

• W. Europe will be a slow growth region due to its
  demographic evolution and the slow progression of
  TFP.
• W. Europe will be a net exporter of capital and
  the real exchange rate will appreciate.
• European households will take advantage of the
  open economy setting through the capital income
  flows coming from their foreign investment (and
  by the gains of purchasing power they will have
  through imports goods).

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Pension reforms in Western Europe

• A public PAYG system for retirement exists in
  each region in the baseline scenario, starting
  from 2000, net replacement ratios are fixed and
  social contribution rates are rising with ageing.
• 1. Constant contribution rates (CCR) to 2000s
  level adjustment in net replacement ratio.
• 2. Postponement of retirement age (PRA)
  gradual five years rise in the participation rate
  (from 2005 to 2025).
• 3. Migratory scenario flows of migrants into
  Western Europe in order to get a dependency ratio
  close to the one of the PRA case.

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Pension reforms in Western Europe
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Pension reforms in Western Europe
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CCR increase in saving as households need to
save more, the public system being made less
generousPRA decrease in saving because of the
positive effect on life cycle income.
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CCR temporary decrease of consumption per
capitaPRA permanent increase of consumption
per capita
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CCR adverse demand shock leading to a
(temporary) depreciation of real exchange
ratePRA depreciation of real exchange rate
the positive supply shock exceeds the positive
demand shock
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CCR depreciation leads to an improvement of the
trade balance.PRA trade balance is temporarily
below the baseline in relation with the increase
of imports.
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CCR European households have accumulated saving
and the ownership ratio is above its baseline
level.PRA ownership ratio below the baseline
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Distributional Consequences of pensions reforms
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Pension reforms in Western Europe
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Pension reforms in Western Europe
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Pension reforms in Western Europe
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Pension reforms in Western Europe