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Population ageing and prices in an OLG model with money created by credits

Igor Fedotenkov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides an explanation of 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 a smaller demand for credits, and lower money creation, which causes a decline in prices. Changes in longevity affect prices via real savings and capital market. Furthermore, we address a few links between interest rates and inflation, which arise in the general equilibrium, and are not thoroughly discussed in the literature. Long-run results are derived analytically; short-run dynamics is simulated numerically.

Keywords: Population ageing; inflation; OLG model; inside money; credits (search for similar items in EconPapers)
JEL-codes: E12 E31 J10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge, nep-ger, nep-mac and nep-mon
Date: 2015-07-10
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