IDEAS home Printed from https://ideas.repec.org/p/mof/wpaper/ron342.html
   My bibliography  Save this paper

Demographic Effects on Prices: Is Aging Deflationary?

Author

Listed:
  • Tomoki Isa

    (Visiting Scholar, Policy Research Institute, Ministry of Finance Japan.)

Abstract

Although the Bank of Japan has continued unconventional monetary easing over the years, it is still far from achieving the inflation target set by the central bank. On the back of this, there has been a growing interest in the relationship between demography and inflation, a relationship which conventional macroeconomics has not discussed much. Analyzing Japanese prefectural panel data, this paper examines demographic effects on inflation with linear regression based on the Phillips curve with some demographic variables. The result shows that the aging population has inflationary pressure on prices, while the declining population has deflationary pressure. The aging population also reduces the impact of population change and economic variation on prices, flattening the Phillips curve. As a result, this paper clarifies a multifaceted relationship between demography and inflation, suggesting that demography is not the main cause of deflation and low inflation in Japan.

Suggested Citation

  • Tomoki Isa, 2021. "Demographic Effects on Prices: Is Aging Deflationary?," Discussion papers ron342, Policy Research Institute, Ministry of Finance Japan.
    • Handle: RePEc:mof:wpaper:ron342
    as

    Download full text from publisher

    File URL: https://www.mof.go.jp/pri/research/discussion_paper/ron342.pdf
    File Function: First version, 2016
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Katagiri, Mitsuru & Konishi, Hideki & Ueda, Kozo, 2020. "Aging and deflation from a fiscal perspective," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 1-15.
    2. Patrick A. Imam, 2015. "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 138-154, March.
    3. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
    4. Yihan Liu & Niklas Westelius, 2017. "The Impact of Demographics on Productivity and Inflation in Japan," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-16, June.
    5. Masaaki Shirakawa, 2012. "Demographic Changes and Macroeconomic Performance: Japanese Experiences," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 30, pages 19-38, November.
    6. James D. Hamilton, 2018. "Why You Should Never Use the Hodrick-Prescott Filter," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 831-843, December.
    7. John V. Leahy & Aditi Thapar, 2019. "Demographic Effects on the Impact of Monetary Policy," NBER Working Papers 26324, National Bureau of Economic Research, Inc.
    8. Mikael Juselius & Elod Takats, 2015. "Can demography affect inflation and monetary policy?," BIS Working Papers 485, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mateo Zokalj, 2016. "The impact of population aging on public finance in the European Union," Financial Theory and Practice, Institute of Public Finance, vol. 40(4), pages 383-412.
    2. Fedotenkov, Igor, 2018. "Population ageing and inflation with endogenous money creation," Research in Economics, Elsevier, vol. 72(3), pages 392-403.
    3. Dániel Baksa & Zsuzsa Munkácsi, 2019. "More Gray, More Volatile? Aging and (Optimal) Monetary Policy," Bank of Lithuania Working Paper Series 67, Bank of Lithuania.
    4. Paula C. A. M. de Albuquerque & Jorge Caiado & Andreia Pereira, 2020. "Population aging and inflation: evidence from panel cointegration," Journal of Applied Economics, Taylor & Francis Journals, vol. 23(1), pages 469-484, January.
    5. FUJITA Shigeru & FUJIWARA Ippei, 2015. "Declining Trends in the Real Interest Rate and Inflation: Role of aging," Discussion papers 15140, Research Institute of Economy, Trade and Industry (RIETI).
    6. Barbiellini Amidei, Federico & Gomellini, Matteo & Piselli, Paolo, 2019. "The price of demography," MPRA Paper 94435, University Library of Munich, Germany.
    7. Fedotenkov, Igor, 2015. "Population ageing and prices in an OLG model with money created by credits," MPRA Paper 66056, University Library of Munich, Germany.
    8. Kenichi Sakura, 2020. "Comments on "Can an ageing workforce explain low inflation?"," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation dynamics in Asia and the Pacific, volume 111, pages 81-84, Bank for International Settlements.
    9. Goh, Soo Khoon & McNown, Robert & Wong, Koi Nyen, 2020. "Macroeconomic implications of population aging: Evidence from Japan," Journal of Asian Economics, Elsevier, vol. 68(C).
    10. Thomas McGregor, 2019. "Pricing Sovereign Debt in Resource-Rich Economies," IMF Working Papers 2019/240, International Monetary Fund.
    11. Katagiri, Mitsuru & Konishi, Hideki & Ueda, Kozo, 2020. "Aging and deflation from a fiscal perspective," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 1-15.
    12. Puonti, Päivi, 2023. "Effective Fiscal Policy in an Aging Economy: Evidence from a BVAR Analysis," ETLA Working Papers 110, The Research Institute of the Finnish Economy.
    13. Jaehyeok Kim & Minwoo Jang & Donghyun Shin, 2019. "Examining the Role of Population Age Structure upon Residential Electricity Demand: A Case from Korea," Sustainability, MDPI, vol. 11(14), pages 1-19, July.
    14. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España.
    15. Miguel Faria-e-Castro, 2019. "A Quantitative Analysis of Countercyclical Capital Buffers," Working Papers 2019-008, Federal Reserve Bank of St. Louis, revised 01 Jan 2020.
    16. Juselius, Mikael & Takáts, Előd, 2021. "Inflation and demography through time," Journal of Economic Dynamics and Control, Elsevier, vol. 128(C).
    17. Zongwu Cai & Jiazi Chen & Linlin Niu, 2021. "A Semiparametric Model for Bond Pricing with Life Cycle Fundamental," Working Papers 2021-01-06, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    18. Dantas Guimarães, Silvana & Ferreira Tiryaki, Gisele, 2020. "The impact of population aging on business cycles volatility: International evidence," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    19. Eric M. Leeper, 2015. "Fiscal Analysis is Darned Hard," CAEPR Working Papers 2015-021, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    20. Zongwu Cai & Jiazi Chen & Linlin Liu, 2021. "Estimating Impact of Age Distribution on Bond Pricing: A Semiparametric Functional Data Analysis Approach," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202102, University of Kansas, Department of Economics, revised Jan 2021.

    More about this item

    Keywords

    inflation; deflation; Philipps curve; monetary policy; demography; aging population; population decline; old-age dependency ratio; Japanese economy;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mof:wpaper:ron342. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Policy Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/prigvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.