Progress and Implications in the Research of Population Aging and Monetary Policies

Abstract

Population aging is a major challenge faced by all the human beings in the 21st century. By 2017, the global population-aging rate has reached 8.70%, and by 2030 and 2050, this figure is expected to climb further to 11.66% and 15.82% respectively, among which developed countries are the highest, with 22.93% and 26.62% respectively. Obviously, the rapid accumulation and amplification of life cycle characteristics of individual behaviors will lead to significant macroeconomic effects and policy adjustment pressure, and monetary policy regulations are no exception. In countries and regions with the highest rate of population aging, monetary policies in Japan and the European Union have gone further and further on the road of quantitative easing” in recent years, but economic performance has been lackluster. Therefore, a paramount question is: what effect does the evolution of the population age structure have on monetary policies? As one of the countries with the fastest aging speed and the largest number of elderly people in the world, how should Chinese monetary policies adjust to cope with the tide of aging population? In this paper, we review some literature about the relationship between population aging and the final goal, intermediate target and conduction effects of monetary policies, and present the main content, research method and perspective for the majority of researchers and policy-makers. Then, based on the actual economic development in China, some decision-making suggestions are put forward. The results show that the impact of population aging on monetary policies is mainly reflected in the following aspects. First, from the perspective of the final goal of monetary policies, population aging will lead to a decline in the inflation rate and the level of potential economic output, increase the unemployment rate, trigger international capital flows and asset price fluctuations, and then breed financial risks. Second, from the perspective of the intermediate target of monetary policies, the decline of the fertility rate and the extension of life expectancy will change the dynamic relationship between capital and labor, and lead the marginal rate of return on capital, and then the natural interest rate to decline, thus resulting in the narrowing or even failure of the traditional monetary policy space, and the increase of the risk of economic sliding into liquidity trap”. Finally, the aging population tends to weaken the monetary policy interest rate transmission channel and the credit transmission channel, while the wealth effect channel may gradually strengthen. In China, the time node of aging crisis” will be between 2020 and 2060, and it is still in the front end”. Based on the lessons from developed countries, this paper proposes that China’s monetary policy authorities should strengthen the estimation of the natural interest rate, explore more accurate intermediate targets, dredge transmission channels, and pay attention to the coordination of various regulatory policies to enhance the effectiveness of monetary policies under the shock of aging.