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Working Paper

Why Aging Induces Deflation and Secular Stagnation


Abstract: We provide a quantitative theory of deflation and secular stagnation. In our lifecycle framework, an aging population puts persistent downward pressure on the price level, real interest rates, and output. A novel feature of our theory is that it also recognizes the reactions of government policy. The central bank responds to falling prices by reducing its policy nominal interest rate, and the fiscal authority responds by allowing the public debt–gross domestic product ratio to rise.

Keywords: monetary policy; lifecycle; portfolio choice; secular stagnation; nominal government debt; aging; Tobin effect; fiscal policy; deflation;

JEL Classification: E52; E62; G51; D15;

https://doi.org/10.29338/wp2022-12

Status: Published in 2022

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Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2022-09-29

Number: 2022-12