Robustness to Stochastic Shocks of Alternative Old-Age Pension Arrangements: Macroeconomic Stability

Ermolieva, T., MacKellar, F.L., & Westlund, A. (1999). Robustness to Stochastic Shocks of Alternative Old-Age Pension Arrangements: Macroeconomic Stability. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-99-024

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Abstract

The robustness analysis presented in this paper is a part of the work done to develop and verify the properties of a stochastic macroeconomic-demographic growth model focused on social security (MacKellar and Ermolieva 1999). The first set of experiments on robustness has been reported by Westlund et al. (1999).

Here we study the sensitivity of model solutions with respect to structural changes in exogenous variables and time varying structural interactions. The parameters varied are the productivity of capital and labor force participation rates. The sensitivity analysis focuses on three macroeconomic indices of the stability of the old-age support system: current balance and assets of the private, defined-contribution, fully-funded pension system and balance of the public, defined-benefit, Pay As You Go (PAYG) pension system. Robustness at the microeconomic level, construed as the stability of pensioners' and workers' after-tax income, is the subject of another paper in this series.

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