Forecasting Mortality in the Event of a Structural Change

Summary In recent decades, life expectancy in developed countries has risen to historically unprecedented levels driven by unforeseen declines in rates of mortality. The prospects of further reductions are of fundamental importance in various areas. In this context, we consider the problem of forecasting future mortality and life expectancy in the event of a structural change. We show how recent advances in statistical testing for structural changes can be used to arrive at properly specified models for the general level of mortality in the context of the Lee–Carter model. Specifically, the results of tests for a change in the trend of the index of mortality and for the presence of a unit root are used to identify appropriate forecasting models. The methodology proposed is applied to post-1950 mortality data for a set of developed countries to test the usual assumption that is made in the literature of a sustained decline in mortality at roughly constant rates in this period. Structural changes in the rate of decline in overall mortality are found for almost every country, especially in male populations. We also illustrate how accounting for such a change can lead to a major effect in mortality and life expectancy forecasts over the next decades.