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Can demography affect inflation and monetary policy?

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  • Mikael Juselius
  • Elod Takats

Abstract

Several countries are concurrently experiencing historically low inflation rates and ageing populations. Is there a connection, as recently suggested by some senior central bankers? We undertake a comprehensive test of this hypothesis in a panel of 22 countries over the 1955–2010 period. We find a stable and significant correlation between demography and low-frequency inflation. In particular, a larger share of dependents (ie young and old) is correlated with higher inflation, while a larger share of working age cohorts is correlated with lower inflation. The results are robust to different country samples, time periods, control variables and estimation techniques. We also find a significant, albeit unstable, relationship between demography and monetary policy.

Suggested Citation

  • Mikael Juselius & Elod Takats, 2015. "Can demography affect inflation and monetary policy?," BIS Working Papers 485, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:485
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. La démographie influence-t-elle l’inflation et la politique monétaire ?
      by Martin Anota in D'un champ l'autre on 2015-02-12 04:16:06

    Citations

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    Cited by:

    1. Juselius, Mikael & Takáts, Előd, 2018. "The enduring link between demography and inflation," Research Discussion Papers 8/2018, Bank of Finland.
    2. Carvalho, Carlos & Ferrero, Andrea & Nechio, Fernanda, 2016. "Demographics and real interest rates: Inspecting the mechanism," European Economic Review, Elsevier, vol. 88(C), pages 208-226.
    3. repec:pal:buseco:v:52:y:2017:i:4:d:10.1057_s11369-017-0057-x is not listed on IDEAS
    4. FUJITA Shigeru & FUJIWARA Ippei, 2015. "Declining Trends in the Real Interest Rate and Inflation: Role of aging," Discussion papers 15140, Research Institute of Economy, Trade and Industry (RIETI).
    5. Igor Fedotenkov, 2016. "Population ageing and inflation with endogenous money creation," Bank of Lithuania Working Paper Series 23, Bank of Lithuania.
    6. Nickel, Christiane & Bobeica, Elena & Lis, Eliza & Sun, Yiqiao, 2017. "Demographics and inflation," Working Paper Series 2006, European Central Bank.
    7. repec:nbb:ecrart:y:2017:m:june:i:i:p:111-125 is not listed on IDEAS
    8. Stefano Neri & Giuseppe Ferrero & Marco Gross, 2017. "On secular stagnation and low interest rates: demography matters," Temi di discussione (Economic working papers) 1137, Bank of Italy, Economic Research and International Relations Area.
    9. Santiago García-Verdú & Manuel Ramos-Francia, 2016. "On the costs of deflation: a consumption-based approach," BIS Papers chapters,in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 247-273 Bank for International Settlements.
    10. Fujita, Shigeru & Fujiwara, Ippei, 2016. "Declining Trends In The Real Interest Rate And Inflation: The Role Of Aging," Working Papers 16-29, Federal Reserve Bank of Philadelphia.
    11. Fedotenkov, Igor, 2015. "Population ageing and prices in an OLG model with money created by credits," MPRA Paper 66056, University Library of Munich, Germany.
    12. Jakob de Haan & Marco Hoeberichts & Renske Maas & Federica Teppa, 2016. "Inflation in the euro area and why it matters," DNB Occasional Studies 1403, Netherlands Central Bank, Research Department.
    13. Biswajit Maitra, 2016. "Inflation Dynamics in India: Relative Role of Structural and Monetary Factors," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(2), pages 237-255, December.
    14. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España;Occasional Papers Homepage.

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    Keywords

    demography; ageing; inflation; monetary policy;

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