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Insecurities of the old and marginalized : Inflation, Oil Shocks, Financial Crisis and Social Security

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  • Ashima Goyal

    (IGIDR)

Abstract

The paper examines the impact of recent inflation and financial shocks on the vulnerable, and explores policy design to reduce both future shocks and vulnerability to shocks. Inflation affects the typical savings cum pension portfolio and the specific consumption basket of the old, as prices of services rise compared to manufactured goods. Money illusion and habit, which tend to increase with age, aggravate the psychological trauma associated with inflation. The decline of traditional sources of social security marginalizes those without savings, in the context of sustained ruralurban and international migration. Trends determining inflationdomestic and global, institutional change, and greater openness explain why inflation has been moderate in India, compared to other emerging markets. Since the polity is averse to high inflation, and commodity price shocks are moderating, high inflation will not persist. But the shocks demonstrate the importance of food price inflation for aggregate inflation in populous South Asia. Therefore improvements in agricultural productivity, with supportive buffer stock, fiscal and monetary policy are critical to lower the level of chronic inflation. Regulatory changes to reduce excessive risktaking in financial markets and the aggravation of inflation from speculation are examined. Finally, other policy measures to improve security for the old and keep them an active, vital part of the community are drawn together.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22933.

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Date of creation: Jan 2009
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Handle: RePEc:eab:financ:22933

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
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Keywords: Aged; inflation; Oil shocks; financial crisis; social security;

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  1. Gary Gorton, 2008. "The Panic of 2007," Yale School of Management Working Papers, Yale School of Management amz2372, Yale School of Management.
  2. Ashima Goyal, 2009. "Financial crises: reducing pro-cyclicality," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 2(1), pages 173-183.
  3. Hahn Robert & Passell Peter, 2008. "The Rush to Re-Regulate," The Economists' Voice, De Gruyter, De Gruyter, vol. 5(3), pages 1-3, July.
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