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Aging and the Real Interest Rate in Japan: A Labor Market Channel

Author

Listed:
  • Shigeru Fujita
  • Ippei Fujiwara
Abstract
This paper explores a causal link between aging of the labor force and declining trends in the real interest rate in Japan. We develop a search/matching model that features heterogeneous workers with respect to their ages and firm-specific skills. Using the model, we examine the long-run implications of the sharp drop in labor force entry in the 1970s. We show that the changes in the demographic structure induce significant low-frequency movements in per capita consumption growth and the real interest rate. The model suggests that aging of the labor force accounts for 40 percent or more of the declines in the real interest rate observed between the 1980s and 2000s in Japan. We also examine the impacts of other long-term developments such as a slowdown of TFP growth and higher shares of female and non-regular workers.

Suggested Citation

  • Shigeru Fujita & Ippei Fujiwara, 2021. "Aging and the Real Interest Rate in Japan: A Labor Market Channel," Working Papers 21-23, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:92541
    DOI: 10.21799/frbp.wp.2021.23
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    References listed on IDEAS

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    Cited by:

    1. Ho, Paul, 2024. "Estimating the effects of demographics on interest rates: A robust Bayesian perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 158(C).
    2. XU Peng, 2021. "Population Aging and Small Business Exits," Discussion papers 21091, Research Institute of Economy, Trade and Industry (RIETI).
    3. Pierre L Siklos, 2022. "Monetary, fiscal and demographic interactions in Japan: impact and a comparative assessment," Working Papers halshs-03776217, HAL.
    4. Fujita, Shigeru & Fujiwara, Ippei, 2023. "Aging and the real interest rate in Japan: A labor market channel," Journal of the Japanese and International Economies, Elsevier, vol. 69(C).
    5. Otsu, Keisuke & Shibayama, Katsuyuki, 2022. "Population aging, government policy and the postwar Japanese economy," Journal of the Japanese and International Economies, Elsevier, vol. 64(C).
    6. Han, Fei, 2024. "The impact of demographic change on the natural rate of interest in Japan," Japan and the World Economy, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Aging; Real interest rate; Japan;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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