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Olgamap |
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OverLapping Generations Applied Model
to Ageing and Pensions |
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Xavier Chojnicki
Riccardo Magnani |
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The Cepii has developed OLGAMAP model in order to study the economic and financial effects of population ageing. The OLGAMAP model is a stylised overlapping-generations general equilibrium model for the three largest European countries: France, Germany and the United-Kingdom. The structure of the OLGAMAP model is a halfway between pure general equilibrium models with rigorous microeconomic foundations and accounting models where the macroeconomic environment remains exogenous. |
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This model is composed of 4 blocs (the last 3 ones being interdependent): |
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1. The “demographic bloc” consists in an age pyramid by sex that changes over time on the basis of population projections during the simulation period. This bloc is completed by a scenario of activity rates by sex that provide the evolution of the labour forces. Agents are characterised by age, sex, and professional status (executive, non executive or civil servant) in order to model the various existing pension schemes in each country. |
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2. The “macroeconomic bloc” is based on a constant returns to scale production function where the composite good, used for consumption and for investment, is produced by combining labour and physical capital. At equilibrium, efficient labour is determined by comparing the potential labour force coming from the demographic bloc with the labour demand of firms. Following a WS-PS approach, real rigidities on labour market determine a structural equilibrium unemployment rate. This macroeconomic bloc allows to take into account the general equilibrium effects, such as the impact of the rise of the public debt on savings, or the impact of the increase of contribution rates on wages. |
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3. The “income bloc” concerns the determination of the different income flows (wage, pension and pre-retirement benefits), consumption and saving. By determining the wealth accumulation it thus feeds the “macroeconomic bloc” at the next period. In the spirit of Blanchet (1992), expectations are backward looking and saving behaviours are essentially exogenous. |
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4. The “pension bloc” specifies in a detail and rigorous framework the way in which pensions are calculated in the three countries. The “pension bloc” determines the pension level at the age of retirement and the revaluation of the pension stock. It also allows to calculate the pension superannuation funds imbalance as well as the total debt level of pension schemes in the absence of parametric reforms. |
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The purpose of this model is to analyse the macroeconomic effects of ageing and of various pension reforms undertook to ensure the sustainability of the main European pensions systems. Its originality lies to the fact that the analysis is carried out by considering three different opening environments. In the first case, the economies are closed so the return to capital adjusts in order to clear the domestic capital market. In the second case, the economies are fully open and the return to capital is taken as a given. In the third case, the economies are integrated in a financial area with perfect capital mobility within the area but capital is not mobile toward the rest of the world. |
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