Okay Boomer... Excess Money Growth, Inflation, and Population Aging

Joseph Kopecky

Economic Papers from Trinity College Dublin, Economics Department

Abstract: What determines the strength of the relationship between money growth rate and inflation? A large literature suggests that it has weakened since the 1980s, without a definitive explanation of the cause. In this paper, I explore the extent that population age structure explains changes in the pass through of money growth rates to inflation. I first show that the quantity theory of money holds over long time horizons in a long run annual panel of countries, with substantial effects of money growth rates in the shorter-to-medium term. I then estimate state dependent local projections at five year horizons, showing that various measures of population age structure have significant effects on the strength of the money growth-inflation relationship. These demographics can account for a substantial increase in the effect of money on prices in the 1970s, as well as a subsequent decline throughout the great moderation. I find that the baby boomer generation, now in the age group around retirement, are applying pward pressure on this relationship again, with ambiguous effects in the future as low fertility and rising longevity continue to play a role.

Keywords: Inflation; Aging; Money Growth (search for similar items in EconPapers)
JEL-codes: E31 E40 E50 E52 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2021-06, Revised 2021-10
New Economics Papers: this item is included in nep-age, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.tcd.ie/Economics/TEP/2021/TEP0721.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0721

Access Statistics for this paper

More papers in Economic Papers from Trinity College Dublin, Economics Department Contact information at EDIRC.
Bibliographic data for series maintained by Colette Angelov ().