Shock from graying: is the demographic shift weakening monetary policy effectiveness

In: IMF working paper 13/191

In: IMF Working Papers

Abstract

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