Demographics and the Natural Rate of Interest in Japan

Author/Editor:

Fei Han

Publication Date:

February 15, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that 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.

Series:

Working Paper No. 19/31

Subject:

English

Publication Date:

February 15, 2019

ISBN/ISSN:

9781484396230/1018-5941

Stock No:

WPIEA2019031

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

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