More Gray, More Volatile? Aging and (Optimal) Monetary Policy

Author/Editor:

Daniel Baksa ; Zsuzsa Munkacsi

Publication Date:

September 20, 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:

The evidence on the inflation impact of aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model, we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first, using this framework, to discuss how aging affects the transmission channels of monetary policy. We are also the first to examine aging and optimal central bank policies. As aging redistributes wealth among generations and the labor force becomes more scarce, our model suggests that aging makes monetary policy less effective and in more gray societies central banks should react more strongly to nominal variables.

Series:

Working Paper No. 19/198

Subject:

English

Publication Date:

September 20, 2019

ISBN/ISSN:

9781513509082/1018-5941

Stock No:

WPIEA2019198

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

46

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