Prepared by Roberto Piazza (IMF) in the context of the 2013 Malaysia FSAP (http://www.imf.org/external/pubs/ft/scr/2013/cr1352.pdf)
The word “fundamental” can be confusing and can give rise to misinterpretations. A full discussion on this point, which is also useful for shedding light on the conceptual framework that should be used in the interpretation of the results derived here, is contained in Box 1.
Official publications report estimates of the overall population only at an annual frequency. In the alternative model, quarterly population levels were obtained using a spline interpolation of annual data. To capture only the long term component of population changes, and to avoid artificial fluctuations introduced by the interpolation, the quarterly population series were filtered using an HP procedure. The annual percentage change in the trend population (POP) is then obtained. As expected, the regression coefficient for population trend growth is positive and significant, but explains a small portion of the independent variable’s total variance. The alternative model also includes as regressors the contemporaneous values of RGDP and of CIR, which have positive and significant regression coefficients.