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Fiscal Risks in an Ageing World and the Implications for Monetary Policy

Author

Listed:
  • Manoj Pradhan

    (Talking Heads Macro)

  • Charles Goodhart

    (London School of Economics)

Abstract

Ageing societies are likely to face rapidly changing structural macroeconomic trends, with fiscal balances likely to worsen over time. It is widely acknowledged by forecasters and financial markets that debt-to-GDP ratios are tending to rise over time, but there are signs that the size and persistence of future deficits and debts may be underestimated. This underestimation comes from three sources: i) incorrect consideration of the medical complications of older cohorts; ii) a demography-driven rise in inflation, real interest rates and interest expenses; and iii) misalignment of fiscal and monetary policy incentives in an inflationary environment. We argue that a new era is starting, when we will have to face complicated relations between demography, and fiscal and monetary policy.

Suggested Citation

  • Manoj Pradhan & Charles Goodhart, 2024. "Fiscal Risks in an Ageing World and the Implications for Monetary Policy," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 23(4), pages 69-79.
    • Handle: RePEc:mnb:finrev:v:23:y:2024:i:4:p:69-79
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    More about this item

    Keywords

    Demography; globalisation; China; ageing; inflation; inequality; debt; monetary and fiscal policies;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General

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