More Gray, More Volatile? Aging and (Optimal) Monetary Policy

47 Pages Posted: 8 Nov 2019

See all articles by Daniel Baksa

Daniel Baksa

International Monetary Fund (IMF)

Zsuzsa Munkacsi

International Monetary Fund (IMF)

Date Written: September 2019

Abstract

The evidence on the inflation impact of aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies' data and a DSGE-OLG model, we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first, using this framework, to discuss how aging affects the transmission channels of monetary policy. We are also the first to examine aging and optimal central bank policies. As aging redistributes wealth among generations and the labor force becomes more scarce, our model suggests that aging makes monetary policy less effective and in more gray societies central banks should react more strongly to nominal variables.

Keywords: Price indexes, Economic growth, Real interest rates, Central banking and monetary issues, Negative interest rates, aging, monetary policy transmission, optimal monetary policy, inflation targeting, WP, policy rule, old society, overlap generation, old-age, cyclical behavior

JEL Classification: E31, E52, J11, E01, G21, E2

Suggested Citation

Baksa, Daniel and Munkacsi, Zsuzsa, More Gray, More Volatile? Aging and (Optimal) Monetary Policy (September 2019). IMF Working Paper No. 19/198. Available at SSRN: https://ssrn.com/abstract=3482281

Daniel Baksa (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Zsuzsa Munkacsi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
13
Abstract Views
48
PlumX Metrics