Demographics, Retirement Age, and Real Interest Rates in Poland

Abstract

Changes in the size and the age structure of a population have a great
impact on an economy, especially on national savings and capital flows.
Poland’s population, although still relatively young when compared to other
developed countries, is expected to experience accelerated ageing and decline in
forthcoming decades. In this paper, we assess the effects of these processes for
Polish economy. Using an open-economy OLG model with demographic shocks
and a variable retirement age, we simulate dynamics of real interest rates, main
macro aggregates as well as net foreign assets to GDP. We show that rapid ageing
will reduce the interest rate gap between Poland and the developed countries
by 1.3-2 p.p. We also document a strong positive relationship between interest
rates and the retirement age and find that the decline in the interest rate in
Poland is primarily driven by the surviving probability shock.