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Demographics will reverse three multi-decade global trends

Goodhart, Charles and Pradhan, Manoj (2017) Demographics will reverse three multi-decade global trends. BIS working papers, 656. Bank for International Settlements, Basel, Switzerland.

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Identification Number: 656

Abstract

Between the 1980s and the 2000s, the largest ever positive labour supply shock occurred, resulting from demographic trends and from the inclusion of China and eastern Europe into the World Trade Organization. This led to a shift in manufacturing to Asia, especially China; a stagnation in real wages; a collapse in the power of private sector trade unions; increasing inequality within countries, but less inequality between countries; deflationary pressures; and falling interest rates. This shock is now reversing. As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall. What is the biggest challenge to our thesis? The hardest prior trend to reverse will be that of low interest rates, which have resulted in a huge and persistent debt overhang, apart from some deleveraging in advanced economy banks. Future problems may now intensify as the demographic structure worsens, growth slows, and there is little stomach for major inflation. Are we in a trap where the debt overhang enforces continuing low interest rates, and those low interest rates encourage yet more debt finance? There is no silver bullet, but we recommend policy measures to switch from debt to equity finance.

Item Type: Monograph (Working Paper)
Official URL: http://www.bis.org/index.htm
Additional Information: © 2017 Bank for International Settlements
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HN Social history and conditions. Social problems. Social reform
Sets: Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 12 Sep 2017 14:17
Last Modified: 28 Sep 2017 08:57
URI: http://eprints.lse.ac.uk/id/eprint/84208

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