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Is Japan’s Population Aging Deflationary?
Author:
Mr. Derek Anderson
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Mr. Dennis P Botman
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Mr. Benjamin L Hunt
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Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 139
Language:
English
Publication Date:
04 Aug 2014
DOI:
https://doi.org/10.5089/9781498392129.001
ISBN:
9781498392129
ISSN:
1018-5941
Pages:
23
Keywords:
WP; real interest rate; price; aggregate demand; monetary policy; Population aging; deflation; Abenomics; inflation expectation; inflation dynamics; factor of production; affects inflation; savings rate; rate of return; retirees fan inflation; Aging; Real interest rates; Inflation; Fiscal consolidation; Global
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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.
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Japan has the most rapidly aging population in the world. This affects growth and fiscal sustainability, but the potential impact on inflation has been studied less. We use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Many of these factors will beset other advanced countries as well, but we find that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund