Is Japan’s Population Aging Deflationary?
IMF Working Papers, August 4, 2014
Source details
- Canonical URL
- Is Japan’s Population Aging Deflationary?
Other formats
Bibliographic details
- Authors: Derek Anderson, Dennis P Botman, Benjamin L Hunt
- Published: August 4, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498392129.001
Summary findings
- Japan’s rapidly aging population generates substantial deflationary pressures.
- Main channels identified:
- Declining growth.
- Falling land prices.
- Dissaving by the elderly leading to repatriation of foreign assets and real exchange rate appreciation.
- The deflationary effects from aging are magnified by the large fiscal consolidation need.
- Deflation risk from aging is not inevitable: ambitious structural reforms and an aggressive monetary policy reaction can offset deflationary pressures.
Mechanisms and transmission channels
- Aging → lower aggregate growth → downward pressure on prices.
- Aging → lower land demand → falling land prices → additional deflationary impulse.
- Dissaving by retirees → repatriation of foreign assets → real exchange rate appreciation → further deflationary effects.
- Large required fiscal consolidation amplifies the deflationary impact of demographic change.
Policy implications and recommended responses
- Ambitious structural reforms to raise potential growth and mitigate the direct growth effects of aging.
- Aggressive monetary policy reaction can counteract deflationary pressures arising from aging dynamics.
- Policy mix should account for interactions between demographic trends, asset price channels (notably land), external flows from dissaving, and fiscal consolidation needs.
Scope, subjects, and keywords (as stated in the source)
- 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
Derek Anderson, Dennis P Botman, and Benjamin L Hunt, "Is Japan’s Population Aging Deflationary?", IMF Working Papers 2014, 139 (2014).