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Is Japan’s Population Aging Deflationary?

Author

Listed:
  • Derek Anderson
  • Dennis P Botman
  • Benjamin L Hunt

Abstract

Japan has the most rapidly aging population in the world. This affects growth and fiscal sustainability, but the potential impact on inflation has been studied less. We use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Many of these factors will beset other advanced countries as well, but we find that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset.

Suggested Citation

  • Derek Anderson & Dennis P Botman & Benjamin L Hunt, 2014. "Is Japan’s Population Aging Deflationary?," IMF Working Papers 14/139, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/139
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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

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    3. Emese Kreiszné Hudák & Péter Varga & Viktor Várpalotai, 2015. "The macroeconomic impacts of demographic changes in Hungary in the context of the European Union," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(2), pages 89-127.
    4. 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.
    5. Niklas J Westelius & Yihan Liu, 2016. "The Impact of Demographics on Productivity and Inflation in Japan," IMF Working Papers 16/237, International Monetary Fund.
    6. Soyoung Kim & Geunhyung Yim, 2016. "Endogeneity of Inflation Target," Working Papers 2016-18, Economic Research Institute, Bank of Korea.
    7. Igor Fedotenkov, 2016. "Population ageing and inflation with endogenous money creation," Bank of Lithuania Working Paper Series 23, Bank of Lithuania.
    8. Ray, Nikhil. & Velasquez, Agustin. & Islam, Iyanatul., 2015. "Fiscal rules, growth and employment : a developing country perspective," ILO Working Papers 994881313402676, International Labour Organization.
    9. Nickel, Christiane & Bobeica, Elena & Lis, Eliza & Sun, Yiqiao, 2017. "Demographics and inflation," Working Paper Series 2006, European Central Bank.
    10. Mikael Juselius & Elod Takats, 2015. "Can demography affect inflation and monetary policy?," BIS Working Papers 485, Bank for International Settlements.
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    12. 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.
    13. 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.
    14. Harashima, Taiji, 2018. "Why Are Inflation and Real Interest Rates So Low? A Mechanism of Low and Floating Real Interest and Inflation Rates," MPRA Paper 84311, University Library of Munich, Germany.
    15. Ciccarelli, Matteo & Osbat, Chiara, 2017. "Low inflation in the euro area: Causes and consequences," Occasional Paper Series 181, European Central Bank.
    16. Šević, Aleksandar & Brawn, Derek, 2015. "Do demographic changes matter? A cross-country perspective," Journal of Multinational Financial Management, Elsevier, vol. 30(C), pages 36-61.
    17. Daniele, Vittorio, 2015. "Una stagnazione secolare? Italia, Giappone, Stati Uniti, 1950-2015
      [Towards a secular stagnation? Italy, Japan, United States, 1950-2015]
      ," MPRA Paper 69997, University Library of Munich, Germany.
    18. Hanisch, Max, 2017. "The effectiveness of conventional and unconventional monetary policy: Evidence from a structural dynamic factor model for Japan," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 110-134.

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