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Population ageing and inflation with endogenous money creation

Igor Fedotenkov

Research in Economics, 2018, vol. 72, issue 3, 392-403

Abstract: This paper models a mechanism through which population ageing may induce a deflationary process. We propose an overlapping-generations model (OLG) with money created by credits (inside money) and intergenerational trade. The model links demographic factors, such as fertility rates and longevity, to prices. We show that lower fertility rates lead to smaller demand for credit and lower money creation, which in turn cause a decline in prices. Changes in longevity affect prices through real savings and the capital market. Furthermore, a few links between interest rates and inflation are addressed; they arise in the general equilibrium and are not thoroughly discussed in literature. Long-run results are derived analytically; short-run dynamics are simulated numerically.

Keywords: Population ageing; Inflation; OLG Model; Inside money; Credits (search for similar items in EconPapers)
JEL-codes: E12 E21 E31 E41 J10 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Population ageing and inflation with endogenous money creation (2016) Downloads
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