The Enduring Link between Demography and Inflation

35 Pages Posted: 12 Apr 2018 Last revised: 18 Nov 2021

See all articles by Mikael Juselius

Mikael Juselius

Bank of Finland

Előd Takáts

Bank for International Settlements (BIS)

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Date Written: April 6, 2018

Abstract

Demographic shifts, such as population ageing, have been suggested as possible explanations for the recent decade-long spell of low inflation. We identify age structure effects on inflation from cross-country variation in a panel of 22 countries from 1870 to 2016 that includes standard monetary factors. We document a robust relationship that is in line with the lifecycle hypothesis: a larger share of dependent population is inflationary, whereas a larger share of working age population is disinflationary. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.

Keywords: demography, ageing, inflation, monetary policy

JEL Classification: E31, E52, J11

Suggested Citation

Juselius, Mikael and Takáts, Előd, The Enduring Link between Demography and Inflation (April 6, 2018). Bank of Finland Research Discussion Paper No. 8/2018, Available at SSRN: https://ssrn.com/abstract=3159892 or http://dx.doi.org/10.2139/ssrn.3159892

Mikael Juselius (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Előd Takáts

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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