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Okay Boomer... Excess Money Growth, Inflation, and Population Aging

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  • Joseph Kopecky

    (Department of Economics, Trinity College Dublin)

Abstract

What determines the strength of the relationship between money growth rate and inflation? A large literature suggests that it has weakened since the 1980s, without a definitive explanation of the cause. In this paper, I explore the extent that population age structure explains changes in the pass through of money growth rates to inflation. I first show that the quantity theory of money holds over long time horizons in a long run annual panel of countries, with substantial effects of money growth rates in the shorter-to-medium term. I then estimate state dependent local projections at five year horizons, showing that various measures of population age structure have significant effects on the strength of the money growth-inflation relationship. These demographics can account for a substantial increase in the effect of money on prices in the 1970s, as well as a subsequent decline throughout the great moderation. I find that the baby boomer generation, now in the age group around retirement, are applying pward pressure on this relationship again, with ambiguous effects in the future as low fertility and rising longevity continue to play a role.

Suggested Citation

  • Joseph Kopecky, 2021. "Okay Boomer... Excess Money Growth, Inflation, and Population Aging," Trinity Economics Papers tep0721, Trinity College Dublin, Department of Economics, revised Oct 2021.
  • Handle: RePEc:tcd:tcduee:tep0721
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    File URL: https://www.tcd.ie/Economics/TEP/2021/TEP0721.pdf
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    More about this item

    Keywords

    Inflation; Aging; Money Growth;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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