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The enduring link between demography and inflation

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  • Mikael Juselius
  • Előd Takáts

Abstract

Demographic shifts, such as population ageing, have been suggested as possible explanations for the past decade's low inflation. We exploit cross-country variation in a long panel to identify age structure effects in inflation, controlling for standard monetary factors. A robust relationship emerges that accords with the lifecycle hypothesis. That is, inflationary pressure rises when the share of dependants increases and, conversely, subsides when the share of working age population increases. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.

Suggested Citation

  • Mikael Juselius & Előd Takáts, 2018. "The enduring link between demography and inflation," BIS Working Papers 722, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:722
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    2. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Research Discussion Papers 5/2020, Bank of Finland.
    3. Sune Karlsson & Pär Österholm, 2020. "A note on the stability of the Swedish Phillips curve," Empirical Economics, Springer, vol. 59(6), pages 2573-2612, December.
    4. Dante B Canlas & Johnny Noe E Ravalo & Eli M Remolona, 2018. "Do small bank deposits run more than large ones? Three event studies of contagion and financial inclusion," BIS Working Papers 724, Bank for International Settlements.
    5. Barbiellini Amidei, Federico & Gomellini, Matteo & Piselli, Paolo, 2019. "The price of demography," MPRA Paper 94435, University Library of Munich, Germany.
    6. Serguei Kaniovski & Thomas Url & Helmut Hofer & Viola Garstenauer, 2021. "A Long-run Macroeconomic Model of the Austrian Economy (A-LMM 2.0). New Results (2021)," WIFO Studies, WIFO, number 67377, January.
    7. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Bank of Finland Research Discussion Papers 5/2020, Bank of Finland.
    8. Pierre L Siklos, 2022. "Monetary, fiscal and demographic interactions in Japan: impact and a comparative assessment," Working Papers halshs-03776217, HAL.
    9. György Matolcsy & Márton Nagy & Dániel Palotai & Barnabás Virág, 2020. "Inflation in the Digital Age: Inflation Measurement and Bias in the 21st Century," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 19(1), pages 5-36.
    10. Paula C. A. M. de Albuquerque & Jorge Caiado & Andreia Pereira, 2020. "Population aging and inflation: evidence from panel cointegration," Journal of Applied Economics, Taylor & Francis Journals, vol. 23(1), pages 469-484, January.
    11. Ademmer, Martin & Boysen-Hogrefe, Jens & Fiedler, Salomon & Gern, Klaus-Jürgen & Groll, Dominik & Jannsen, Nils & Kooths, Stefan & Mösle, Saskia & Potjagailo, Galina & Stolzenburg, Ulrich, 2019. "Mittelfristprojektion für Deutschland im Herbst 2019 - Potenzialwachstum kommt in die Jahre," Kieler Konjunkturberichte 60, Kiel Institute for the World Economy (IfW Kiel).
    12. Thieß Petersen & Martina Lizarazo López & Serguei Kaniovski & Thomas Url, 2020. "Makroökonomische Folgen der demografischen Alterung [Macroeconomic Consequences of Demographic Ageing: Simulations Until 2050]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(12), pages 958-963, December.
    13. Federico Barbiellini & Matteo Gomellini & Lorenzon Incoronato & Paolo Piselli, 2020. "The Age-Productivity Profile:Long-Run Evidence from Italian Regions," CReAM Discussion Paper Series 2019, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
    14. Dennis Bonam & Gabriele Galati & Irma Hindrayanto & Marco Hoeberichts & Anna Samarina & Irina Stanga, 2019. "Inflation in the euro area since the Global Financial Crisis," DNB Occasional Studies 1703, Netherlands Central Bank, Research Department.
    15. Lis, Eliza & Nickel, Christiane & Papetti, Andrea, 2020. "Demographics and inflation in the euro area: a two-sector new Keynesian perspective," Working Paper Series 2382, European Central Bank.
    16. Ambrocio, Gene, 2022. "Inflationary household uncertainty shocks," Bank of Finland Research Discussion Papers 5/2022, Bank of Finland.
    17. Claudia-Andreea Toma & Burlacioiu Cristina, 2019. "Mortality Phenomenon Analysis on Adult Population Under the Influence of Economic Factors in European Context," Journal of Social and Economic Statistics, Sciendo, vol. 8(1), pages 15-25, July.
    18. Gozluklu, Arie & Morin, Annaïg, 2019. "Stock vs. Bond yields and demographic fluctuations," Journal of Banking & Finance, Elsevier, vol. 109(C).
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    More about this item

    Keywords

    demography; ageing; inflation; monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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