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Population ageing and inflation with endogenous money creation

Igor Fedotenkov

No 23, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: This paper provides an explanation as to why population ageing is associated with deflationary processes. For this reason we create an overlapping-generations model (OLG) with money created by credits (inside money) and intergenerational trade. In other words, we combine a neoclassical OLG model with post-Keynesian monetary theory. The model links demographic factors such as fertility rates and longevity to prices. We show that lower fertility rates lead to smaller demand for credits, and lower money creation, which in turn causes 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 E31 E41 J10 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-02-23
New Economics Papers: this item is included in nep-age, nep-cmp, nep-dge, nep-mac and nep-mon
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Journal Article: Population ageing and inflation with endogenous money creation (2018) Downloads
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