Macroeconomic Impact of Demographic Transition and Effectiveness of Monetary Policy: Evidence from East Asian Economies

Karan Rai and Bhavesh Garg

Emerging Markets Finance and Trade, 2025, vol. 61, issue 12, 3742-3766

Abstract: This article examines the impact of changing age structure on selected macroeconomic indicators and the effectiveness of monetary policy transmission. We use the panel of nine East Asian economies from 1990 to 2020 and employ a dynamic common correlated effects estimator. The results indicate that the working-age population, particularly the prime working-age cohort, emerges as a key driver of economic growth and savings. However, the growing old-age dependency rate poses significant challenges by reducing aggregate saving and diminishing the effectiveness of monetary policy. Overall, financial institutions play a critical role, amplifying the positive effects of workforces on saving, while young working age significantly improves the monetary policy transmission effectiveness.

Date: 2025
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DOI: 10.1080/1540496X.2025.2489001

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