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Shock from Graying; Is the Demographic Shift Weakening Monetary Policy Effectiveness

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  • Patrick A. Imam

Abstract

Abstract Empirical evidence is mounting that, in advanced economies, changes in monetary policy have a more benign impact on the economy—given better anchored inflation expectations and inflation being less responsive to variation in unemployment—compared to the past. We examine another aspect that could explain this empirical finding, namely the demographic shift to an older society. The paper first clarifies potential transmission channels that could explain why monetary policy effectiveness may moderate in graying societies. It then uses Bayesian estimation techniques for the U.S., Canada, Japan, U.K., and Germany to confirm a weakening of monetary policy effectiveness over time with regards to unemployment and inflation. After proving the existence of a panel co-integration relationship between ageing and a weakening of monetary policy, the study uses dynamic panel OLS techniques to attribute this weakening of monetary policy effectiveness to demographic changes. The paper concludes with policy implications.

Suggested Citation

  • Patrick A. Imam, 2013. "Shock from Graying; Is the Demographic Shift Weakening Monetary Policy Effectiveness," IMF Working Papers 13/191, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/191
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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. Le vieillissement démographique est-il déflationniste ?
      by ? in D'un champ l'autre on 2014-09-15 03:55:00
    2. 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. Mikael Juselius & Elod Takats, 2015. "Can demography affect inflation and monetary policy?," BIS Working Papers 485, Bank for International Settlements.
    2. Jong-Won Yoon & Jinill Kim & Jungjin Lee, 2014. "Impact of Demographic Changes on Inflation and the Macroeconomy," IMF Working Papers 14/210, International Monetary Fund.
    3. repec:spr:qualqt:v:51:y:2017:i:6:d:10.1007_s11135-016-0407-1 is not listed on IDEAS
    4. Fedotenkov, Igor, 2015. "Population ageing and prices in an OLG model with money created by credits," MPRA Paper 66056, University Library of Munich, Germany.
    5. Igor Fedotenkov, 2016. "Population ageing and inflation with endogenous money creation," Bank of Lithuania Working Paper Series 23, Bank of Lithuania.

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