The Impact of Age Structure on Inflation

Many countries in the world experience demographic transition ¿ the significant decrease of fertility rates and increase share of the old population. The pace and characteristics of demographic shifts however are individual for each country. At the same time these countries face low inflation rates or even deflation. In this thesis, I demonstrate how demographic changes are correlated with low inflation rates. I estimated two different models ¿ VAR and FEM for panel data using two samples of developing countries. The primary argument of using two separate groups for evaluating the same problem is robustness check, whether all three imposed hypotheses will hold in any sample of the population. These hypotheses are - first, deflation is positively correlated with the increased share of the old people, second, low inflation in developing economies has structural pattern due to demographic changes and third, deflation can be forecastable if demographic trends drive it. Despite the heterogeneity of the results from PVAR and FEM, a negative impact of aging population on inflation has been proved.