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Population aging and money demand

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  • Wang, Lei
  • Zhu, Taihui

Abstract

This paper proposes the hypothesis that population aging could lead to higher demand for money. A testable implication is derived from this hypothesis on the basis of Friedman’s money demand function, which is that the proportion of old-age population is negatively correlated with the velocity of money. The testable implication is verified with the cross section data of 204 countries and the time series data of the US. This paper’s study provides a partial explanation for why the quantity theory of money appears ineffective in developed countries.

Suggested Citation

  • Wang, Lei & Zhu, Taihui, 2021. "Population aging and money demand," Economics Letters, Elsevier, vol. 206(C).
    • Handle: RePEc:eee:ecolet:v:206:y:2021:i:c:s0165176521002615
    DOI: 10.1016/j.econlet.2021.109984
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    References listed on IDEAS

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    1. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    2. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Chapters, in: The Demand for Money: Some Theoretical and Empirical Results, pages 1-29, National Bureau of Economic Research, Inc.
    3. Charles Goodhart & Manoj Pradhan, 2017. "Demographics will reverse three multi-decade global trends," BIS Working Papers 656, Bank for International Settlements.
    4. Nickel, Christiane & Bobeica, Elena & Lis, Eliza & Sun, Yiqiao, 2017. "Demographics and inflation," Working Paper Series 2006, European Central Bank.
    5. Goodhart, Charles & Pradhan, Manoj, 2017. "Demographics will reverse three multi-decade global trends," LSE Research Online Documents on Economics 84208, London School of Economics and Political Science, LSE Library.
    6. Pedro Teles & Harald Uhlig & João Valle e Azevedo, 2016. "Is Quantity Theory Still Alive?," Economic Journal, Royal Economic Society, vol. 126(591), pages 442-464, March.
    7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Money demand; Population aging; The quantity theory of money;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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