Macroeconomics Seminar - Ippei Fujiwara (Keio University and Australian National University)

Macroeconomic Seminar Series

Room 315, Level 3, FBE Building, 111 Barry Street, Carlton

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Mei Dong

mei.dong@unimelb.edu.au

T: +61 3 8344 1209

Title: "Aging and Deflation: A Politico-economic Perspective"

Abstract: How does the grayer society affect the political decision making regarding inflation rate? Is deflation preferred as the society gets older? In order to answer to these questions, we first compute the optimal inflation rates in the stationary population for young and old respectively, by using a New Keynesian model with the overlapping generations. Then, we explore how the weighted average of optimal inflation rates by population has developed with the on-going societal aging in Japan. Old prefers lower inflation rates as aging deepens. The fluctuations in the weighted average of optimal inflation rates are, however, very small compared to those found in the data as long as we focus on the long-run optimal inflation rate by the Ramsey planner. On the other hand, heterogeneous impacts from surprise inflation via nominal asset holdings can be very large. The optimal inflation rates for old given positive nominal asset holdings can be as negative as possible.