Demographic Changes and Inflation Dynamics

HKIMR Working Paper No. 02/2019

45 Pages Posted: 14 Jan 2019

See all articles by Gaofeng Han

Gaofeng Han

Hong Kong Monetary Authority; University of California, Santa Cruz - Department of Economics

Date Written: January 14, 2019


This study investigates the impact of demographic changes on inflation in Hong Kong, Singapore and Mainland China using the structural VAR methodology. It shows an increase in the youth population is inflationary, while an increase in the aging population is disinflationary. By affecting inflation expectations, demography directly impacts inflation, or indirectly through the interest rate channel, whereas its impact through the output gap or the wage channel is ignorable. However, the magnitude of the impact of demographic changes is small; with the variance decomposition revealing demographic shocks contribute to no more than 1% of annual inflation fluctuations over a 10-year horizon. Among the three economies, Hong Kong and Mainland China are more sensitive to demographic changes than Singapore. Although disinflation, as a consequence of an aging population, may not be the primary concern in the short term, the cumulative effect of aging on disinflation should not be ignored when the aging process persists or accelerates. Fiscal or monetary policies, in addition to measures to increase labour supply, should be taken when necessary to mitigate the effect of aging on inflation in the short-to-mid term.

Keywords: Interest Rate-Based Framework, Monetary Policy Instruments, China, Effects of Monetary Policy

JEL Classification: J11, C54

Suggested Citation

Han, Gaofeng, Demographic Changes and Inflation Dynamics (January 14, 2019). HKIMR Working Paper No. 02/2019, Available at SSRN: or

Gaofeng Han (Contact Author)

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States

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