Aging effects on consumption risk-sharing channels in European countries

Abstract

This study tests the hypothesis that aging affects risk sharing via capital markets, federal governments, and credit markets. We apply the decomposition method to both simulated and European country data. For the simulation, we consider a simple overlapping-generations model and generate data that theoretically fit the model. Empirically, we apply the variance decomposition method using data from Europe. We find some evidence that aging has a significant effect on consumption risk-sharing via the credit market channel, whereas the results for other channels are mixed. With moderate reservations, our empirical results for Europe are consistent with the results derived from the simulated data.