Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness

 
Author/Editor: Patrick A. Imam
 
Publication Date: September 06, 2013
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: Abstract Empirical evidence is mounting that, in advanced economies, changes in monetary policy have a more benign impact on the economy—given better anchored inflation expectations and inflation being less responsive to variation in unemployment—compared to the past. We examine another aspect that could explain this empirical finding, namely the demographic shift to an older society. The paper first clarifies potential transmission channels that could explain why monetary policy effectiveness may moderate in graying societies. It then uses Bayesian estimation techniques for the U.S., Canada, Japan, U.K., and Germany to confirm a weakening of monetary policy effectiveness over time with regards to unemployment and inflation. After proving the existence of a panel co-integration relationship between ageing and a weakening of monetary policy, the study uses dynamic panel OLS techniques to attribute this weakening of monetary policy effectiveness to demographic changes. The paper concludes with policy implications.
 
Series: Working Paper No. 13/191
Subject(s): Monetary policy | United States | Canada | Japan | United Kingdom | Germany | Developed countries | Aging | Population | Economic models | Cross country analysis

 
English
Publication Date: September 06, 2013
ISBN/ISSN: 9781475598070/2227-8885 Format: Paper
Stock No: WPIEA2013191 Pages: 38
Price:
US$18.00 (Academic Rate:
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