Demographics and the Natural Rate of Interest in Japan
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Summary:
Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan.
Series:
Working Paper No. 2019/031
Subject:
Demographic change Financial services National accounts Population and demographics Population growth Potential output Production Real interest rates Return on investment
English
Publication Date:
February 15, 2019
ISBN/ISSN:
9781484396230/1018-5941
Stock No:
WPIEA2019031
Pages:
31
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