Vintage versus homogeneous capital in simulations of population ageing: does it matter?

Abstract

The vintage and homogeneous capital forms of the aggregate production function can be calibrated to generate the same output level from a given data set in steady state. However, it is shown show that this equivalence breaks down during the adjustment process to an employment shock, such as that caused by an ageing population. Simulations are conducted illustrating the magnitude of the difference in optimal labour productivity growth under the two models.