Coupled with the smaller labour force, this, in turn, will produce sluggish growth in GDP. All these factors will affect the formation of the equilibrium interest rate – in other words, the level of real interest that balances investment and savings and is in harmony with price stability and balanced growth.
The scale of these of interest rate effects has been estimated in a number of studies. Almost every one of these studies has observed that ageing reduces both willingness to save and willingness to invest. With regard to the formation of real interest rates the key question is which of the two reacts more strongly, savings or investment.