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Decreased Effectiveness of Fiscal and Monetary Policies in Japan’s Aging Society

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Listed:
  • Yoshino, Naoyuki

    (Asian Development Bank Institute)

  • Miyamoto, Hiroaki

    (Asian Development Bank Institute)

Abstract

We study how an aging population affects economic performance and the effectiveness of fiscal and monetary policies. We develop a New Keynesian dynamic stochastic general equilibrium model with heterogeneous households, workers, and retirees. We demonstrate that an increase in the proportion of working population increases aggregate output, consumption, and investment by increasing total labor supply in the long run. It also increases wages and reduces social security burden of the government. We also find that effectiveness of fiscal and monetary policies is weakened when the proportion of retirees becomes larger. This is the reason why recent monetary policies cannot lift the Japanese economy from prolonged stagnation.

Suggested Citation

  • Yoshino, Naoyuki & Miyamoto, Hiroaki, 2017. "Decreased Effectiveness of Fiscal and Monetary Policies in Japan’s Aging Society," ADBI Working Papers 691, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0691
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    References listed on IDEAS

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    2. Kim, Myunghyun & Song, Sang-yoon, 2022. "The effects of monetary policy on consumption: Workers vs. retirees," Journal of Macroeconomics, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    aging population; aging society; fiscal policy; monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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