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Decreased Effectiveness of Fiscal and Monetary Policies in Japan’s Aging Society

Naoyuki Yoshino () and Hiroaki Miyamoto

No 691, ADBI Working Papers from Asian Development Bank Institute

Abstract: We study how an aging population affects economic performance and the effectiveness of fiscal and monetary policies. We develop a New Keynesian dynamic stochastic general equilibrium model with heterogeneous households, workers, and retirees. We demonstrate that an increase in the proportion of working population increases aggregate output, consumption, and investment by increasing total labor supply in the long run. It also increases wages and reduces social security burden of the government. We also find that effectiveness of fiscal and monetary policies is weakened when the proportion of retirees becomes larger. This is the reason why recent monetary policies cannot lift the Japanese economy from prolonged stagnation.

Keywords: aging population; aging society; fiscal policy; monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E62 J11 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2017-05-09
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-mac
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