Euro Area countries are experiencing an unprecedented demographic transition: increasing life expectancy and persistent low fertility rates have contributed to move population structure towards older cohorts. This implies a series of changes in consumption and savings decisions of households, affecting some key macroeconomics variables, including inflation. Demographic structure has been identified as one of the possible drivers affecting it. Nevertheless, the study of the relationship between demography and inflation has been tackled by few and contradictory papers. We exploit the Life Cycle Hypothesis by Modigliani (1954) to analyse the channels through which population ageing affects inflation. According to the factor we refer to, the model predicts two different effects on inflation: an increase in dependants (i.e. young and old population) generates an inflationary pressure, while gains in longevity exert a deflationary thrust. Therefore, we find empirical evidence through a model inspired by Juselius and Takàts (2018) showing that the link between demography and inflation in Euro Area is consistent: old age share generates a positive but low inflation pressure that would seem to be offset by the deflationary pressure generated by the gains in longevity.
Gli stati dell’Area Euro stanno attraversando un cambiamento demografico che non trova precedenti: l’aumento dell’aspettativa di vita ed i perennemente bassi tassi di fertilità hanno contribuito ad un generale invecchiamento della popolazione. Questo fenomeno comporta una serie di cambiamenti nelle decisioni di consumo e risparmio delle famiglie, e quindi in alcune variabili macroeconomiche chiave, tra cui l’inflazione. La struttura demografica di un paese è stata identificata come uno dei possibili driver di quest’ultima. Tuttavia, la relazione tra demografia e inflazione è stata affrontata da pochi e contradditori studi. Abbiamo utilizzato l’Ipotesi del Ciclo di Vita di Modigliani (1954) per analizzare i canali attraverso cui l’invecchiamento della popolazione influenza l’inflazione. Il modello delinea due effetti diversi: un aumento dei dependants (cioè giovani ed anziani) genera inflazione, mentre un aumento dell’aspettativa di vita deflazione. Abbiamo quindi cercato conferma empirica utilizzando un modello ispirato da quanto proposto da Juselius and Takàts (2018), dimostrando che la relazione tra inflazione e demografia nell’Area Euro è robusta: un aumento di anziani in termini percentuali genera una lieve ma positiva spinta inflazionistica, che sembrerebbe essere controbilanciata da una pressione deflazionistica causata da un aumento dell’aspettativa di vita.
Population ageing and inflation : an empirical analysis on the Euro area
SALVI, GIOVANNI;RAVELLI, ANDREA
2018/2019
Abstract
Euro Area countries are experiencing an unprecedented demographic transition: increasing life expectancy and persistent low fertility rates have contributed to move population structure towards older cohorts. This implies a series of changes in consumption and savings decisions of households, affecting some key macroeconomics variables, including inflation. Demographic structure has been identified as one of the possible drivers affecting it. Nevertheless, the study of the relationship between demography and inflation has been tackled by few and contradictory papers. We exploit the Life Cycle Hypothesis by Modigliani (1954) to analyse the channels through which population ageing affects inflation. According to the factor we refer to, the model predicts two different effects on inflation: an increase in dependants (i.e. young and old population) generates an inflationary pressure, while gains in longevity exert a deflationary thrust. Therefore, we find empirical evidence through a model inspired by Juselius and Takàts (2018) showing that the link between demography and inflation in Euro Area is consistent: old age share generates a positive but low inflation pressure that would seem to be offset by the deflationary pressure generated by the gains in longevity.File | Dimensione | Formato | |
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https://hdl.handle.net/10589/151767