An aging global population is creating a biological trap that renders traditional economic policy useless.
April 26, 2026
Original Paper
Demographics and Monetary Policy: Transmission, Regime Breaks, and the Post-QE Question
SSRN · 6647022
The Takeaway
Older populations systematically compress neutral interest rates, making it impossible for central banks to stimulate growth. Economists often blame specific politicians or bank chairmen for a broken economy. In reality, the aging of the world's people is the primary driver of modern economic stagnation. This demographic shift breaks the transmission of monetary policy that worked for the last century. It means that the tools of the past cannot fix a problem caused by the biological reality of the present.
From the abstract
This paper documents three channels through which demographic structure shapes monetary policy environments --- interest rate levels, inflation dynamics, and monetary transmission --- and shows how their interaction creates a systematic "demographic monetary trap" for aging economies. Using a panel of up to 237 countries from 1970 to 2024, we find that the Higgins (1998) demographic polynomial Z_1 robustly predicts real bond yields ( Z_1 = 57.1 , p < 0.001 on 10-year rates; 55.2 , p < 0.05 on 3-