Abstract
We develop a neoclassical growth model having a realistic demographic structure. We identify the critical channel of impact to be the intertemporal consumption allocation decision through the “generational turnover term”. Expressing the aggregate dynamics as a generalization of the conventional neoclassical growth model provides important insights, enabling us to view in a unified way how alternative demographic structures impinge on the macrodynamic equilibrium. Using an approximation to the generational turnover term, we are able to characterize both the steady state and the local transitional dynamics. Through numerical simulations, we analyze the steady state as well as the transitional effects of structural and demographic changes.
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