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The Effects of Demographic Changes on the Real Interest Rate in Japan

Author

Listed:
  • Daisuke Ikeda

    (Bank of Japan)

  • Masashi Saito

    (Bank of Japan)

Abstract

What are the effects of demographic changes on the real interest rate in Japan? We present a dynamic general equilibrium model in which demographic changes are captured by exogenous changes in the ratio of workers to the total population. Our model predicts that a decline in this ratio in the process of population aging lowers the real interest rate; and the demographic impact on the real interest rate is amplified by a fall in land prices in the presence of collateral constraints. The model is simulated with the realized and forecasted changes in the working-age population ratio and the TFP growth in Japan. Our results indicate that the TFP growth is the main source of variations in the real interest rate, but the demographic factor is also quantitatively important especially for its long-term movements.

Suggested Citation

  • Daisuke Ikeda & Masashi Saito, 2012. "The Effects of Demographic Changes on the Real Interest Rate in Japan," Bank of Japan Working Paper Series 12-E-3, Bank of Japan.
    • Handle: RePEc:boj:bojwps:12-e-3
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    More about this item

    Keywords

    Demographics; land prices; real interest rate; collateral constraint;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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