Is Japan’s Population Aging Deflationary?
August 4, 2014
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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.
Subject: Aging, Financial services, Fiscal consolidation, Fiscal policy, Inflation, Population and demographics, Prices, Public debt, Real interest rates
Keywords: Abenomics, affects inflation, aggregate demand, Aging, deflation, factor of production, Fiscal consolidation, Global, Inflation, inflation dynamics, inflation expectation, monetary policy, Population aging, price, rate of return, real interest rate, Real interest rates, retirees fan inflation, savings rate, WP
Pages:
23
Volume:
2014
DOI:
Issue:
139
Series:
Working Paper No. 2014/139
Stock No:
WPIEA2014139
ISBN:
9781498392129
ISSN:
1018-5941
