Is Japan’s Population Aging Deflationary?
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Summary:
Japan has the most rapidly aging population in the world. This affects growth and fiscal sustainability, but the potential impact on inflation has been studied less. We use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Many of these factors will beset other advanced countries as well, but we find that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset.
Series:
Working Paper No. 2014/139
Subject:
Aging Financial services Fiscal consolidation Fiscal policy Inflation Population and demographics Prices Public debt Real interest rates
English
Publication Date:
August 4, 2014
ISBN/ISSN:
9781498392129/1018-5941
Stock No:
WPIEA2014139
Pages:
23
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