The Effect of Demography on Inflation in Developing Countries of Asia: Empirical Evidence
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The United Nations (2022b) predicts that between 2022 and 2050, the share of the elderly population (65 and above) in the Asian region will double. An aging society would create macroeconomic challenges, and several studies, mainly for developed countries, have negatively linked aging with inflation. Given the absence of research in developing countries, especially Asian countries, we attempt to estimate the impact of demography on inflation in Asian developing countries between 1995 and 2019. Our results indicate that the young (0-14) and old populations (70 and above) are deflationary, while working-age populations and very young retirees (65-69) are inflationary. Our findings favor the political economy hypothesis, i.e., age groups influence inflation based on preference. The findings are robust to adding several macroeconomic controls. Our results suggest that the central bank should follow stringent inflation targeting to mitigate the adverse effects of inflation on economic growth and aging.
Abstract
The United Nations (2022b) predicts that between 2022 and 2050, the share of the elderly population (65 and above) in the Asian region will double. An aging society would create macroeconomic challenges, and several studies, mainly for developed countries, have negatively linked aging with inflation. Given the absence of research in developing countries, especially Asian countries, we attempt to estimate the impact of demography on inflation in Asian developing countries between 1995 and 2019. Our results indicate that the young (0-14) and old populations (70 and above) are deflationary, while working-age populations and very young retirees (65-69) are inflationary. Our findings favor the political economy hypothesis, i.e., age groups influence inflation based on preference. The findings are robust to adding several macroeconomic controls. Our results suggest that the central bank should follow stringent inflation targeting to mitigate the adverse effects of inflation on economic growth and aging.