Population Ageing and Price Level in Japan

This paper estimates the cointegration between population ageing and inflation in Japan using the augmented autoregressive distributed lag model. The method provides a complete indication of cointegration and avoids false conclusions from a unit root test. Moreover, the transmission channel from ageing to the price level is investigated using the pairwise Granger causality. Based on the annual data from 1961 to 2018, a cointegration relationship is found, and the deflationary effect of ageing in Japan is confirmed. Additionally, the young dependency ratio inflates the price level in Japan. Lastly, ageing influences the price level via its impact on the labour supply.