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Prior to the COVID pandemic, industrialized countries experienced a sustained episode of low inflation, low real interest rates, and low per capita gross domestic product (GDP) growth. As the logistical and other disruptions created by the COVID pandemic fade, will industrialized economies once again face downward pressure on prices, real interest rates, and output growth? We present evidence that the aging of the population was depressing the inflation rate, as well as real interest rates and GDP growth, prior to the COVID pandemic. Aging is ongoing in industrialized countries, and it will continue to put large and steady downward pressure on prices, interest rates, and output growth in future years.

Key findings:

  1. Aging is occurring in industrialized and emerging economies.
  2. Aging put large and steady downward pressure on the inflation rate, as well as GDP growth and real interest rates, in the years prior to the COVID pandemic.
  3. Given that aging is ongoing, this downward pressure will continue for many years.
  4. Aging pressures may be less pronounced in the United States compared to Asia and Europe. But the external pressures of aging may also depress US inflation and real interest rates.

Center Affiliation: Center for Quantitative Economic Research

JEL classification: E52, E62, G51, D15

Key words: demographics, prices, output, interest rates, economic growth, aging


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