Too Old or Too Young – Does Population Ageing Matter for Inflation?

Abstract

This study ascertains the impact of population ageing on inflation more comprehensively by an unbalanced panel data of 125 countries spanning between 1996 and 2019. This study contributes a more generalized evidence of the impact of population ageing, and institutional quality on inflation region-wise. The control variables are those conventionally employed in explaining the inflation behaviour, namely real GDP, real interest rate, broad money growth, and imports. The empirical results are based on the panel fixed effects model by Ordinary Least Squares (OLS) estimator with Cross-section Seemingly Unrelated Regression (SUR) Panel-Corrected Standard Errors (PCSE). This study finds that population ageing is deflationary. However, higher inflation is associated with increases in young dependents. The mediating effect of good institution on ageing to inflation is deflationary, while opposite holds given a weak institution. These findings vary among the seven different geographical regions. Indeed, this study is feasible for policymakers from both monetary and fiscal perspectives as well as social security.