From 1850 to 2000, in Western European countries life expectancy rose from 30-40 to 80 years and the average number of children per woman fell from 4 to 5 children to slightly more than one. To gauge the economic consequences of these demographic trends, we implement an overlapping generations...

The demographic transition can affect the equilibrium real interest rate through three channels. An increase in longevity - or expectations thereof - puts downward pressure on the real interest rate, as agents build up their savings in anticipation of a longer retirement period. A reduction in...