As Haruhiko Kuroda tries to spur Japan's inflation rate, he faces a worrying question: What if his Bank of Japan predecessor was right about why he will fail?
In June 2011, then-BOJ Gov. Masaaki Shirakawa faced extreme pressure to double the monetary base, a step Kuroda took just days after replacing him in March. When Shirakawa, a University of Chicago-trained economist, was asked why he'd refused to budge, he offered a surprising excuse: Japan's aging population, whose fixed incomes would be eaten away by rising prices. Politicians thought the rationale was a copout. Shinzo Abe's first act as prime minister was to dump Shirakawa.
Turns out, Shirakawa was on to something. In the new paper "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness?," IMF researcher Patrick Imam offers convincing evidence that aging societies in Japan, Germany and, to some extent, the United States can no longer be manipulated so easily by central bank policies.
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