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The enduring link between demography and inflation

John Juselius and Elod Takats

No 722, BIS Working Papers from Bank for International Settlements

Abstract: Demographic shifts, such as population ageing, have been suggested as possible explanations for the past decade's low inflation. We exploit cross-country variation in a long panel to identify age structure effects in inflation, controlling for standard monetary factors. A robust relationship emerges that accords with the lifecycle hypothesis. That is, inflationary pressure rises when the share of dependants increases and, conversely, subsides when the share of working age population increases. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.

Keywords: demography; ageing; inflation; monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E52 J11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-his, nep-mac and nep-mon
Date: 2018-05
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