Can Demography Affect Inflation and Monetary Policy?

50 Pages Posted: 10 Feb 2015

See all articles by Mikael Juselius

Mikael Juselius

Bank for International Settlements (BIS) - Monetary and Economic Department; Hanken School of Economics - Department of Economics; University of Helsinki - Department of Political and Economic Studies

Előd Takáts

Bank for International Settlements (BIS)

Date Written: February 2015

Abstract

Several countries are concurrently experiencing historically low inflation rates and ageing populations. Is there a connection, as recently suggested by some senior central bankers? We undertake a comprehensive test of this hypothesis in a panel of 22 countries over the 1955-2010 period. We find a stable and significant correlation between demography and low-frequency inflation. In particular, a larger share of dependents (ie young and old) is correlated with higher inflation, while a larger share of working age cohorts is correlated with lower inflation. The results are robust to different country samples, time periods, control variables and estimation techniques. We also find a significant, albeit unstable, relationship between demography and monetary policy.

Keywords: demography, ageing, inflation, monetary policy

JEL Classification: E31, E52, J11

Suggested Citation

Juselius, Mikael and Takáts, Előd, Can Demography Affect Inflation and Monetary Policy? (February 2015). BIS Working Paper No. 485, Available at SSRN: https://ssrn.com/abstract=2562443

Mikael Juselius (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Hanken School of Economics - Department of Economics ( email )

PO Box 479
FI-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Előd Takáts

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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