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Can demography affect inflation and monetary policy?

John Juselius and Elod Takats

No 485, BIS Working Papers from Bank for International Settlements

Abstract: Several countries are concurrently experiencing historically low inflation rates and ageing populations. Is there a connection, as recently suggested by some senior central bankers? We undertake a comprehensive test of this hypothesis in a panel of 22 countries over the 1955–2010 period. We find a stable and significant correlation between demography and low-frequency inflation. In particular, a larger share of dependents (ie young and old) is correlated with higher inflation, while a larger share of working age cohorts is correlated with lower inflation. The results are robust to different country samples, time periods, control variables and estimation techniques. We also find a significant, albeit unstable, relationship between demography and monetary policy.

Keywords: demography; ageing; inflation; monetary policy (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-02
New Economics Papers: this item is included in nep-age, nep-mac and nep-mon
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