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Can Demography Improve Inflation Forecasts? The Case of Sweden

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  • Bruér, Mattias

    (Department of Economics)

Abstract

Time series regressions indicate that age structure has significant forecasting power on Swedish inflation. The results agree with a Phillips-Okun framework, assuming that the demographic composition affects productivity. The relative age effects are also relatively well in accordance with what could be expected from life-cycle theory. In the forecasting exercise the age model outperforms the estimated benchmarks; i.e. two autoregressive models, an ARIMA and the 2 per cent forecast corresponding to the stipulated inflation target. The age model is also considerably better than the consensus forecasts and it is equal in merit with a general VAR model that has been used by the Riksbank (Bank of Sweden). We conclude that the source of information embedded in the age shares is something the Riksbank should consider when conducting monetary policy. When extending the forecasting horizon, the age model predicts a significant rise in the inflationary pressure after 2005 when the big baby boom cohort of the 1940s enters retirement.

Suggested Citation

  • Bruér, Mattias, 2002. "Can Demography Improve Inflation Forecasts? The Case of Sweden," Working Paper Series 2002:4, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uunewp:2002_004
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation forecasting; Demography; Life-cycle hypothesis;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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