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

September 20, 2019

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Format: Chicago

Daniel Baksa, and Zsuzsa Munkacsi. More Gray, More Volatile? Aging and (Optimal) Monetary Policy, (USA: International Monetary Fund, 2019) accessed December 30, 2024

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.

Subject: Aging, Consumption, Financial services, Inflation, Labor, Labor supply, National accounts, Population and demographics, Prices, Real interest rates

Keywords: Aging, Consumption, Europe, Global, Inflation, Inflation targeting, Labor supply, Monetary policy, Monetary policy reaction, Monetary policy rule, Monetary policy shock, Monetary policy transmission, Optimal monetary policy, Price level, Reaction function, Real interest rates, Rule parameter, Transmission mechanism, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/198
Stock No:

WPIEA2019198
ISBN:

9781513509082
ISSN:

1018-5941

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