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Population growth, the natural rate of interest, and inflation

Sebastian Weiske

No 03/2019, Working Papers from German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung

Abstract: Population growth rates have fallen considerably in most developed countries. An important question for monetary policy is whether this has led to a fall in the natural rate of interest. In representative agent models, the response of the natural rate to a fertility shock crucially depends on the preference parameter determining how households weight generations of different size. Estimating a medium-scale model of the US-economy featuring fertility shocks, I find that declining population growth has lowered both the natural rate and inflation by about 0.4 percentage points in recent decades.

Keywords: inflation; business cycles; monetary policy; natural rate of interest; demographic transition (search for similar items in EconPapers)
JEL-codes: D64 D91 E31 E32 E52 J11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dem, nep-mac and nep-mon
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:svrwwp:032019

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