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Why Aging Induces Deflation and Secular Stagnation

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  • R. Anton Braun

    (Federal Reserve Bank of Atlanta (E-mail: r.anton.braun@gmail.com))

  • Daisuke Ikeda

    (Director, Financial System and Bank Examination Department, Bank of Japan (E-mail: daisuke.ikeda@boj.or.jp))

Abstract

We provide a quantitative theory of deflation and secular stagnation. In our lifecycle framework an aging population puts persistent downward pressure on the price level, real interest rates, and output. A novel feature of our theory is that it also recognizes the reactions of government policy. The central bank responds to falling prices by reducing its policy nominal interest rate and the fiscal authority responds by allowing the public debt-GDP ratio to rise.

Suggested Citation

  • R. Anton Braun & Daisuke Ikeda, 2022. "Why Aging Induces Deflation and Secular Stagnation," IMES Discussion Paper Series 22-E-15, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:22-e-15
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    More about this item

    Keywords

    Aging; Deflation; Lifecycle; Monetary policy; Portfolio choice; Secular stagnation; Tobin effect;
    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
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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