Demography and low-frequency capital flows

We consider the role of demographic trends in driving international capital flows in a multicountry overlapping generations model in which saving decisions are tied to agents' life expectancy. Capital flows reflect differences between saving and investment across countries. Demographic changes affect the aggregate accumulation of assets in two ways: by changing life expectancy which changes individual household saving behavior, and by changing the age distribution of the population by which individual household decisions are aggregated. We use a quantitative version of the model to illustrate the impact of demography on capital flows and net foreign assets in China, Germany, Japan, and the United States.