27
Appendix
Our demographic specification follows Fair and Dominguez (1991) and Higgins (1998). We divide
the population into J = 12 age cohorts and the age variables enter the net foreign assets equation as
Σ12 . . 12
j=1ajPjt where pjt is the population share of cohort j in period t and ∑ j. = αj = O. We make
the restriction that the coefficients lie along a cubic polynomial
• ∙2 ∙3
α j = Yθ + Y1 j + Y2 j + Y3 j
The zero-sum restriction on the coefficients implies that
Yo =-Y,(1∕ J )∑'^=J - Y2(1/J )∑∑ j2 - γ3(1∕ J )∑j=1 j3
In turn, we can estimate Y1, Y2, Y3 by introducing the age variables into the estimated equation in the
following way
Y1DEM11 + Y2 DEM 21 + Y3 DEM31
where
dem1t = ∑ .∙ iP, - (1/J )∑j=1 j ^p
dem22 t = ∑j=1 j2 P,, - (1/ J )∑1,2=1 j2 ∑j=1 Pt
DEM3. = ∑ j=1 j3 Pt - (1 / J )∑ j=1 j3 ∑j=1 Pt
Finally, we can easily recover the implicit αj once we know Yo, Y1, Y2, Y3.
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