The Mechanism And Effect Of Demographic Transition On Long-term Natural Interest Rate

The long-term natural interest rate is the anchor of the policy rate and is essentially determined by the potential growth rate of the economy.From a perspective of the world,during the historical process of population transition,the potential economic growth rate and the long-term natural interest rate of the developed countries generally have generally shown a long-term downward trend,which is an important historical phenomenon worth studying.The impact of the demographic transition on the natural rate of interest has been recognized.However,few works of literature have explored the theoretical mechanism of the impact of population transition on natural interest rate based on the intermediary of potential growth rate.This thesis takes this as the research topic,aiming to deeply explore the theoretical mechanism of population transition affecting long-term natural interest rate and carry out relevant empirical tests.At present,China has entered the historical stage of accelerating and deepening of population transition.How to scientifically respond to many challenges brought about by population transformation by monetary policy and social policy has become a major topic of academic concern.This study can provide valuable reference and enlightenment for China’s monetary policy formulation.The natural interest rate can be classified as long-term and short-term.The changes in the short-term natural interest rate are mostly caused by some short-term factors,such as the impact of monetary and fiscal policies.The change in the long-run natural interest rate is determined by factors such as demographic,technological progress and institutional change that have a lasting impact in the long term.Compared with the short-term natural interest rate,the long-term natural interest rate focuses on revealing the internal relationship between the economy and the interest rate,and anchoring the long-term natural interest rate can maintain steady investment and economic growth.At the same time,from the perspective of factors affecting the long-term natural interest rate,population changes have a relatively lasting and strong inertia impact on the long-term natural interest rates,so the study on the relationship between population transition and the long-term natural interest rate has better stability and predictability.Population,as the upper limit of labor supply,is an important factor affecting the potential growth rate in the tradition al economic theory.With the rise and maturity of endogenous growth theory,the influence of human capital on potential growth rate has also been emphasized and developed.In summary,population change can affect the potential growth rate through labor supply,capital accumulation,and productivity channels.On the other hand,the potential growth rate is closely related to the long-run natural interest rate.The long-run natural Interest rate can be regarded as the marginal productivity of physical capital.Based on the steady-state analysis of the Solow model,the marginal productivity of capital under the gold rate is equal to the economic growth rate under the steady-state.Based on this,this thesis argues that the potential growth rate is the intermediary of population transition affecting the long-term natural interest rate,and population transition affects the long-term natural interest rate mainly through the intermediary of potential growth rate.Based on the above theoretical framework,this study uses a representative sample of transnational panel data from 29 major developed and developing countries with a long time span.Using the mediating effects,moderating and moderating mediating effects models which are widely used in causal inference,this paper focuses on the direct effect of population transition on the long-term natural interest rate and the mediating effect mediated by the potential growth rate,the moderating and moderating mediating effects of technological progress,outward investment and migration are discussed,and the heterogeneity of population transition on long-term natural interest rate is analyzed.The main conclusions of this study are as follows:First,the influence of population transition on natural interest rate is nonlinear.The demographic characteristics,population quantity dividend and population quality dividend in the initial stage of population transition have a positive impact on the natural interest rate.However,with the completion of the population transition,the formation and deepening of aging population will have a continuous negative impact on the natural interest rate.In order to hedge against this negative impact,it is not enough to rely solely on population quality dividend,but also to maintain the role of population quantity dividend,giving full play to the combined effect of population quantity dividend and population quality dividend to hedge against the natural interest rate decline.Second,by exploring the internal mechanism of population transition affecting the natural interest rate,this study has found that the economic potential growth rate is an important intermediary of population transition affecting the natural interest rate,and the population transition affects the natural interest rate through the potential growth rate.Third,the process of population transition affecting natural interest rate directly or through potential growth rate will be regulated by technological progress,outward investment and immigration.Fourth,the economy is a dynamic system,and the impact of population transition on the natural interest rate is heterogeneous.Specifically,the negative impact of aging population on the natural interest rate is more serious in countries that have completed the population transition.The improvement of potential growth rate and public service level can better stimulate the positive impact of population characteristics on the natural interest rate.From the perspective of space,the accumulation of human capital can increase the natural interest rate of the surrounding economies,while the deepening of population aging will suppress the natural interest rate of the country and the surrounding areas.The main policy implications of this thesis are as follows:First,the declining trend of China’s population is one of the main factors influencing the decline of China’s long-term natural interest rate in the future.The central bank should fully consider the dynamic information of China’s population transformation and its impact on the natural interest rate in making monetary policy,and establish long-term benchmark interest rate as an anchor with the long-term natural interest rate to formulate and implement monetary policies conducive to maintaining the potential growth rate of the economy and the long-run natural interest rate.Second,in order to resist the inertia of negative population growth after the reversal of population change trend and avoid China’s natural interest rate sliding into the ultra-low interest rate range,China’s population development policy focusing on population control and population quality improvement over the past 40 years should be rapidly changed,and the population balanced development policy of "paying equal attention to population quality and quantity,and making the population structure more reasonable" should be implemented.While continuing to implement the policy of improving population quality,we should formulate and implement more and more policies of childbearing,upbringing,education,retirement and external talent introduction to promote the increase of the proportion of China’s labor force population as soon as possible.The innovation of this paper is mainly reflected in three aspects: First,comprehensively taking into account the demographic characteristics of different stages in the process of population transformation,discussing the impact of population fertility rate,population quantity dividend,population quality dividend and population aging on natural interest rate;Second,taking the potential growth rate as the intermediary,this thesis constructs the basic theoretical framework that the population transition affects the long-term natural interest rate through the potential growth rate,and makes an empirical analysis by using the intermediary model;Third,the moderating role of technological progress,foreign investment and immigration in the process of population transition affecting the natural interest rate is discussed in depth.And the effect of population transition on natural interest rate is analyzed from the perspective of heterogeneity.