Fiscal risks in an ageing world and the implications for monetary policy

Manoj Pradhan and C. A. E. Goodhart

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 t ime, 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 f iscal 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.

JEL-codes: E20 E30 E40 E50 I11 J11 J14 N10 N30 P10 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2024-12-31
New Economics Papers: this item is included in nep-age, nep-cba, nep-his and nep-mon
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Published in Financial and Economic Review, 31, December, 2024, 23(4), pp. 69-79. ISSN: 2415-928X

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