Posts in Demographics
The BOJ & JPY and some new predictions on global fertility

I have a few things on my mind this week. We have to talk about Japan and the BOJ. Last week’s decision by the BOJ to raise its deposit rate above zero for the first time in 17 years cements Japan and its central bank as a counter cyclical indicator, of sorts. While major central banks have spent the majority of the past 18 months raising interest rates, the BOJ has stubbornly resisted calls to exit NIRP, despite rising inflation. Now that the ECB, BOE and Fed are on the cusp of lowering interest rates, the BOJ is pulling the trigger on a hike. The BOJ’s decision raises a number of fundamental questions for global macro traders and thinkers. The most obvious one is whether the twin inflation shock from Covid and shifting geopolitics is now pulling major developed rate markets out of their ZIRP/NIRP funk. And if they are, does this mean that the idea of long-term gravity of rapidly ageing population weighing on inflation and interest rates is wrong? Is Japanification now reversing? I am sceptical, but if Japan manages to escape, it would go a long way to falsify the idea of a determinist link between ageing and disinflation.

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Delayed Gratification - Why are global birth rates falling, and does it matter?

This is the final chapter in the first part of my long-running demographics project. In the previous chapter I described the quantum effect of fertility, which hypothesises a negative relationship between fertility and rising incomes as parents substitute quantity for quality in their reproductive decisions and child-rearing. But can the quantum effect explain why birth rates in one country after the other appears to be stuck below the replacement level, and why global fertility will soon drop below that same level? The answer is no.

To understand current and more recent post WWII global fertility trends—broadly since the 1970s—we need to introduce tempo effects to the analysis. Tempo effects describe the tendency of women to postpone the timing of their first child. By mathematical logic, prolonged tempo effects can drive significant population ageing, but a more fundamental question is whether birth postponement also has a lagged effect on quantum, or more precisely, cohort fertility. This chapter discusses these question in the context of the hypothesis of a Second Demographic Transition, SDT, and presents a number of case studies to explore the specifics of recent fertility trends in key countries and regions. The chapter finishes by discussing the idea of a fertility trap, and whether the increasingly accelerating decline in global birth rates are a problem, drawing on the recent polarisation in the debate on this issue.

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The BIS gets it wrong on AI/LLM and feminism & reproduction

The BIS has a Bulletin out on the usefulness of AI and large language models. They’re not terribly impressed.

When posed with a logical puzzle that demands reasoning about the knowledge of others and about counterfactuals, large language models (LLMs) display a distinctive and revealing pattern of failure. 

The LLM performs flawlessly when presented with the original wording of the puzzle available on the internet but performs poorly when incidental details are changed, suggestive of a lack of true understanding of the underlying logic. 

Our findings do not detract from the considerable progress in central bank applications of machine learning to data management, macro analysis and regulation/supervision. They do, however, suggest that caution should be exercised in deploying LLMs in contexts that demand rigorous reasoning in economic analysis.

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