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Demographic Effects on Prices: Is Aging Deflationary?

Author

Listed:
  • Tomoki Isa

    (Visiting Scholar, Policy Research Institute, Ministry of Finance Japan.)

Abstract

Although the Bank of Japan has continued unconventional monetary easing over the years, it is still far from achieving the inflation target set by the central bank. On the back of this, there has been a growing interest in the relationship between demography and inflation, a relationship which conventional macroeconomics has not discussed much. Analyzing Japanese prefectural panel data, this paper examines demographic effects on inflation with linear regression based on the Phillips curve with some demographic variables. The result shows that the aging population has inflationary pressure on prices, while the declining population has deflationary pressure. The aging population also reduces the impact of population change and economic variation on prices, flattening the Phillips curve. As a result, this paper clarifies a multifaceted relationship between demography and inflation, suggesting that demography is not the main cause of deflation and low inflation in Japan.

Suggested Citation

  • Tomoki Isa, 2021. "Demographic Effects on Prices: Is Aging Deflationary?," Discussion papers ron342, Policy Research Institute, Ministry of Finance Japan.
    • Handle: RePEc:mof:wpaper:ron342
    as

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    File URL: https://www.mof.go.jp/pri/research/discussion_paper/ron342.pdf
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    References listed on IDEAS

    as
    1. Katagiri, Mitsuru & Konishi, Hideki & Ueda, Kozo, 2020. "Aging and deflation from a fiscal perspective," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 1-15.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    inflation; deflation; Philipps curve; monetary policy; demography; aging population; population decline; old-age dependency ratio; Japanese economy;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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