Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness
IMF Working Papers, September 6, 2013
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- Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness
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Bibliographic details
- Authors: Patrick A. Imam
- Published: September 6, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475598070.001
Abstract and Main Findings
- Empirical evidence indicates that, in advanced economies, changes in monetary policy have a more benign impact on the economy compared to the past because inflation expectations are better anchored and inflation is less responsive to variation in unemployment.
- The paper examines whether the demographic shift to an older society can help explain the observed moderation in monetary policy effectiveness.
- Bayesian estimation for the U.S., Canada, Japan, U.K., and Germany confirms a weakening of monetary policy effectiveness over time with regards to unemployment and inflation.
- A panel co-integration relationship between ageing and a weakening of monetary policy is established.
- Dynamic panel OLS techniques are used to attribute the weakening of monetary policy effectiveness to demographic changes.
- The paper concludes with policy implications.
Transmission Channels and Conceptual Points
- The study clarifies potential transmission channels that could explain why monetary policy effectiveness may moderate in graying societies.
- Key conceptual elements include interactions among: aging/demographic shift, monetary transmission mechanisms, inflation expectations, unemployment responses, and credit/financial-market channels.
Methodology
- Econometric approaches used:
- Bayesian estimation techniques applied to five advanced economies: the U.S., Canada, Japan, U.K., and Germany.
- Panel co-integration analysis to test long-run relationships between ageing and monetary policy effectiveness.
- Dynamic panel OLS techniques to attribute weakening of policy effectiveness to demographic changes.
Policy Implications
- The paper draws policy implications from the findings that demographic changes—specifically ageing—are associated with a weakening of monetary policy effectiveness on unemployment and inflation.
- Policy recommendations are provided in the paper (summary notes the conclusion with policy implications but does not reproduce the detailed recommendations).
Publication and Metadata
- Author: Patrick A. Imam
- Publication date: September 6, 2013
- Series: Working Paper No. 2013/191
- Volume: 2013
- Issue: 191
- Pages: 38
- DOI: https://doi.org/10.5089/9781475598070.001
- Stock No: WPIEA2013191
- ISBN: 9781475598070
- ISSN: 1018-5941
- Subjects: Aging, Credit, Inflation, Labor, Money, Population and demographics, Prices, Unemployment
- Keywords: Aging, central bank, Credit, Demographic shift, effectiveness of monetary policy, financial crisis, Global, Inflation, inflation expectation, interest rate, life-cycle model, monetary policy change, monetary policy effectiveness, monetary policy shock, monetary transmission mechanism, Unemployment, WP
IMF Working Papers — Patrick A. Imam, "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness", Working Paper No. 2013/191 (September 6, 2013).