Demographics and the Natural Rate of Interest in Japan
IMF Working Papers, February 15, 2019
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- Demographics and the Natural Rate of Interest in Japan
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Bibliographic details
- Authors: Fei Han
- Published: February 15, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484396230.001
Summary and key findings
- Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy.
- The paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan.
- Demographic change has a significantly negative impact on the natural rate by lowering trend potential growth.
- The negative impact has been increasing over time amid stronger demographic headwinds.
- These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan.
Methodology
- Semi-structural model employed to estimate demographic impact on the natural rate of interest in Japan.
Policy implications and recommendations
- Boost potential growth to offset the negative demographic impact and raise the natural rate.
- Address low inflation expectations in conjunction with demographic trends to support reflation efforts by the Bank of Japan.
Subject tags and keywords (as listed)
- Subjects: Demographic change, Financial services, National accounts, Population and demographics, Population growth, Potential output, Production, Real interest rates, Return on investment
- Keywords: baseline estimate, core inflation, Demographic change, Global, inflation expectation, interest rate gap, Japan, monetary policy, natural rate, natural rate of interest, Population growth, Potential output, rate of interest, real interest rate, Real interest rates, Return on investment, WP
Content in this bundle
- Working Paper