Medium-term forecasts of potential GDP and inflation using age structure information

Economic behaviour as well as economic resources of individuals vary with age. Swedish time series show that the age structure contains information correlated to medium-term trends in growth and inflation. GDP gaps estimated by age structure regressions are closely related to conventional measures. Monetary policy is believed to affect inflation with a lag of 1 or 2 years. Projections of the population's age structure are comparatively reliable several years ahead and provide additional information to improve on 3–5 years-ahead forecasts of potential GDP and inflation. Thus there is a potential scope for using age structure based forecasts as an aid to monetary policy formation.