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

Venue :Online Seminars
Host Name :The SEACEN Centre
Date From :15 Dec 2021
Date To :15 Dec 2021


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.

Full paper:


Ippei Fujiwara
Professor (Faculty of Economics) at Keio University. Full bio:
Shigeru Fujita
Economist at Federal Reserve Bank of Philadelphia