We study how rising longevity affects the long-run real interest rate in an overlapping-generations model with mortality risk and accidental bequests to the young. Longer lives increase retirement saving, which tends to lower the interest rate, but they also reduce such bequests and shift asset payoffs from young savers to surviving retirees, weakening aggregate saving. Public debt amplifies this second force. When debt is sufficiently high, further increases in longevity eventually raise the steady-state interest rate. Thus, longevity need not continue to depress interest rates: with large public debt, the relationship between longevity and the interest rate becomes non-monotonic. • We study the longevity–interest rate relationship in an OLG model with accidental bequests. • Longevity raises saving but reduces accidental bequests to the young. • Public debt amplifies the decline in bequests and shifts asset payoffs. • High public debt can make the relationship U-shaped.
Miyamoto et al. (Fri,) studied this question.