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The impact of demographic change on the natural rate of interest in Japan

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  • Han, Fei

Abstract

This paper develops a semi-structural model to estimate the impact of demographic changes on the natural rate of interest in Japan. We find that demographic changes have a significantly negative impact on the natural rate by lowering the trend potential growth. We also find that the negative impact has increased over time amid stronger demographic headwinds. A lower natural rate of interest could challenge the Bank of Japan’s efforts to reflate the economy. These findings call for measures to boost Japan’s potential growth to offset the negative demographic impact and lift the natural rate of interest.

Suggested Citation

  • Han, Fei, 2024. "The impact of demographic change on the natural rate of interest in Japan," Japan and the World Economy, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:japwor:v:69:y:2024:i:c:s0922142523000634
    DOI: 10.1016/j.japwor.2023.101237
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    More about this item

    Keywords

    Demographic change; Natural rate of interest; Monetary policy; Bayesian estimation; Japan;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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