Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2015:16: Asymptotic Inference in the Lee-Carter Model for Modelling Mortality Rates

Simon Reese ()
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Simon Reese: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: The most popular approach to modelling and forecasting mortality rates is the model of Lee and Carter (Modeling and Forecasting U. S. Mortality, Journal of the American Statistical Association, 87, 659–671, 1992). The popularity of the model rests mainly on its good fit to the data, its theoretical properties being obscure. The present paper provides asymptotic results for the Lee-Carter model and illustrates its inherent weaknesses formally. Requirements on the underlying data are established and variance estimators are presented in order to allow hypothesis testing and the computation of confidence intervals.

Keywords: Lee-Carter model; mortality; common factor models; panel data

JEL-codes: C33; C51; C53; J11

29 pages, May 26, 2015

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