Do demographic changes matter? A cross-country perspective

We explore the inflation-adjusted yields on benchmark 10-year government bonds in seven developed countries to see if both demographic and non-demographic variables can explain why real bond yields are so low. We find that over the last 60 years there has been a regime shift in the late-1980s that radically altered output growth in major economies as dependency ratios declined. Because of this change we used two time periods for our models: low-frequency annual data from 1950 to 2012 and quarterly data from 1990 to 2013. We show that population age ratios are important as a determinant in the demand for financial assets. In this paper we also introduce a global proxy for quantitative easing (QE). We find that in developed markets in Europe and North America the QE has lowered bond yields by approximately 50-100 bps since the global credit crisis began. (C) 2014 Elsevier B.V. All rights reserved.