Estimating Demographic Effects on Inflation in Japan using the Phillips Curve

Kazuhiko Nakahira

Meikai University, Japan

The population distribution in Japan has shifted towards advanced ages with lower fertility rates following the so-called baby boom and increased life expectancy over the last few decades. The relation between the change in population composition and the accompanying downturn in economic growth has attracted public interest. Taking these factors into consideration, this study aims to explore the demographic effects on price level in Japan by panel data analysis at the prefectural level. Concretely, our empirical study tries to examine the impact of a change in the relative ratio of younger and older generations on inflation through the estimation with the special type of regional Phillips curve by using the two-way fixed effects model and the Arellano-Bond type GMM method. Our dynamic panel data analysis following the Arellano-Bond type GMM specification finds that a change in the young-age dependency ratio puts inflationary pressures and a change in the old-age dependency ratio applies deflationary pressures on price level.

Article link: https://www.asianinstituteofresearch.org/JEBarchives/estimating-demographic-effects-on-inflation-in-japan-using-the-phillips-curve