Managing inflation expectations may be tougher in aging societies: Expert

Professor Stefan Nagel from the University of Chicago

Monetary policymakers in aging economies may be perceived to have a comparatively lesser influence on the public’s inflation expectations when compared to those in nations with a different age structure, according to a leading scholar in investor behavior.

Speaking at the 2023 Annual Conference on Asia-Pacific Financial Markets (CAFM) held in Seoul on Friday to Saturday, Professor Stefan Nagel from the University of Chicago said that investors adjust their inflation expectations based on experience rather than the language of monetary policymakers.

Elderly people, in particular, tend to rely more on the inflation patterns they have experienced than on policymakers’ intentions, leading to a slow adjustment in inflation patterns.

During his keynote speech titled, “Learning against inflation experiences,” Nagel said that inflation adaptation learning is formed through experience, making it a continuous and slow process that leads to long-term results.

This means that long-term expected inflation, formed based on past experiences, may not change significantly even if monetary authorities communicate with the aim of achieving immediate impact in the market.

Given this tendency, central banks may feel pressured to adopt a somewhat more hawkish stance than intended when communicating with the market to lower expected inflation.

Professor Nagel added that once high expectations are formed on inflation, it becomes very difficult to reverse them in an aging society.

Organized by the Korean Securities Association and sponsored by Maeil Business Newspaper, CAFM is one of Asia’s representative conferences in finance, marking its 18th year.

A total of 158 papers were submitted from 25 countries this year, with 60 of them presented in 18 sessions, including two sessions for doctoral candidates.