Title

Demographics and Monetary Policy Shocks

DOI

https://doi.org/10.1111/jmcb.12825

Abstract

We show that consumption expenditures for older households are more responsive to monetary policy shocks than for young- or middle-aged households. A one-standard-deviation expansionary monetary policy shock induces a statistically significant and quantitatively large (1.7%) increase in aggregate consumption for old households over the ensuing 3 years. The responses for young- and middle-aged households are smaller and not statistically significant. We also present evidence, suggesting that life-cycle wealth effects play a role in driving the responses. We then build the wealth mechanism into a partial equilibrium life-cycle model, which can qualitatively match the empirical patterns.

Document Type

Article

Publication Date

5-28-2021

Publisher Statement

Copyright © 2021 Wiley Online Library

DOI: https://doi.org/10.1111/jmcb.12825

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