Abstract
Wicksell's cumulative inflation process is founded on the separation of investment and saving decisions. The demographic age structure influences the aggregate of both these decisions, and therefore should be one of the determinants behind the inflation processes. We study annual OECD data 1960–1994 using age variables to explain inflation. Panel estimations of a reduced form inflation-age model show a robust correlation consistent with the hypothesis that increases in the population of net savers dampen inflation while especially the younger retirees fan inflation as they start consuming out of accumulated pension claims. This pattern is expected from life-cycle saving but could also be due to age effects on budget deficits or on money demand. Our results are potentially important for inflation forecasts and monetary policy.
Published Version
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