Demography and Inflation: An International Study

Abstract

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Inflation and Population Age Structure: The Case of Emerging Economies

“…The working age population is found to be deflationary. Andrews et al (2018) find similar results for the same group of countries and the same time period as the previous authors, but they employ an additional method -panel-data VAR -and also break down the group of elderly people into young old (65 -79) and older old (80+), in order to study the potentially contradictory effects of the elderly group size on inflation. They conclude that the older cohort of elderly people is deflationary, while the younger old are inflationary, and that the issue in general merits further research.…”

“…Several studies have identified inflationary pressures from older generations: retired people tend to dis-save and stop contributing goods and services to the economy, but continue to demand goods and services. Such effects were confirmed based on the data for the OECD economies by Lindh andMalmberg (1998, 2000), Juselius and Takáts (2015, 2016a, 2016b, and Andrews et al (2018), as well as for specific countries such as Sweden (Lindh, 1999;Bruer, 2002), the US (McMillan and Baesel, 1990) and Australia (Lenehan, 1996). By the same reasoning, the very young should be inflationary, as was found by examining the OECD data in recent studies by Juselius and Takáts (2015, 2016a, 2016b and Andrews et al (2018).…”

“…This means that we have to give more careful consideration to the inflation indicator that we use. Both Juselius and Takáts (2015) and Andrews et al (2018) mention that demographic indicators, being inertial in nature, should correspond to low-frequency inflation, and they consider annual rates of inflation as being representative of the latter.…”

“…Due to the constraints imposed by the dataset size, we opted against using population polynomials as in Juselius and Takáts (2015) and Andrews et al (2018), and decided instead to work with the three population groups of young, working and old. This setup allows us to compare our results with those of Yoon et al (2014), and with some of the results of Juselius and Takáts (2015) and Andrews et al (2018). Though we do not aim to replicate the results previously obtained for the OECD countries, we wished to make our results comparable with those of the previous studies, and therefore tried to follow the most common path in our baseline models.…”

“…At a first step we analyse the data for different countries and compare them with those for OECD countries from the studies of Juselius and Takáts (2015) and Andrews et al (2018). In the advanced economies sample, inflation, though volatile, remains within the bounds from -5% to +25%; however, in our sample, inflation is much more volatile due to several episodes of hyperinflation followed by a period of high inflation (Figure 1).…”