Demographics and Monetary Policy Shocks
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.
Copyright © 2021 Wiley Online Library
Berg, Kimberly A., Chadwick C. Curtis, Steven Lugauer, and Nelson C. Mark. “Demographics and Monetary Policy Shocks.” Journal of Money Credit and Banking Online First (May 28, 2021). https://doi.org/10.1111/jmcb.12825