It is important to note that the mechanism is driven by the relative wealth levels of different cohorts within the population. It is true that, on average, retirees have low savings rates, as they run down their wealth to finance their retirement. However, the data show that in practice this effect is typically not very strong, so that the average household appears to broadly maintain their wealth during retirement. This tempers the extent to which the retirement of the baby-boom generation reverses the impact of ageing on the real interest rate. [13] These results imply that the effect of population ageing on Global R* has been large, and is expected to persist. While the paths of the underlying drivers are estimated only until 2015, the model-based simulation implies that the equilibrium real interest rate will continue to adjust until the population structure and stock of global capital reach an eventual ‘steady state’. Indeed, the simulation implies that the effects of past structural trends would continue to reduce Global R*, perhaps by another 1 percentage point, over the very long run. [14] So, importantly, what this model, and the data behind it, are telling us is that we should not expect that ageing, and the retirement of baby boomers, will lead to significant upward pressure on Global R* over coming years or decades. The substantial contribution of population ageing to the decline in Global R* in the past stems from the steady increase in longevity, and this mechanism leads to permanently lower Global R*.

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