Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness

September 6, 2013

Preview Citation

Format: Chicago

Patrick A. Imam Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness, (USA: International Monetary Fund, 2013) accessed November 5, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Abstract Empirical evidence is mounting that, in advanced economies, changes in monetary policy have a more benign impact on the economy—given better anchored inflation expectations and inflation being less responsive to variation in unemployment—compared to the past. We examine another aspect that could explain this empirical finding, namely the demographic shift to an older society. The paper first clarifies potential transmission channels that could explain why monetary policy effectiveness may moderate in graying societies. It then uses Bayesian estimation techniques for the U.S., Canada, Japan, U.K., and Germany to confirm a weakening of monetary policy effectiveness over time with regards to unemployment and inflation. After proving the existence of a panel co-integration relationship between ageing and a weakening of monetary policy, the study uses dynamic panel OLS techniques to attribute this weakening of monetary policy effectiveness to demographic changes. The paper concludes with policy implications.

Subject: 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

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/191
Stock No:

WPIEA2013191
ISBN:

9781475598070
ISSN:

1018-5941

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