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Demographic transition and inflation

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  • Rai, Karan
  • Garg, Bhavesh

Abstract

We propose a few testable hypotheses to examine the impact of demographic transition on inflation. We contribute to the existing literature by refining the formulation of hypotheses and treatment of slope heterogeneity and cross-sectional dependence by implementing the cross-sectionally augmented autoregressive distributed lag (CS-ARDL) procedure that adopts dynamic common correlated predictors. To this end, we consider two panels consisting of eight advanced economies (AEs) and sixteen emerging market economies (EMEs) to gain insights into the current asymmetric global demographic transition. Our comprehensive analysis reveals that the share of the working-age population is inflationary in AEs and disinflationary in EMEs. This analysis suggests that an asymmetry in demographic transition between AEs and EMEs influences inflation differently. Our findings offer clues to policymakers regarding the influence of the cohort size of the prime and young working-age population on inflation. Specifically, policymakers in emerging markets should incorporate information about the changing structure of demographic variables as the asymmetry in transition can lead to varying impacts on inflation compared to the impacts in advanced nations.

Suggested Citation

  • Rai, Karan & Garg, Bhavesh, 2024. "Demographic transition and inflation," Economic Systems, Elsevier, vol. 48(4).
    • Handle: RePEc:eee:ecosys:v:48:y:2024:i:4:s0939362524000360
    DOI: 10.1016/j.ecosys.2024.101214
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    Keywords

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    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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