Demographics and Monetary Policy Shocks

72 Pages Posted: 1 Jul 2019

See all articles by Kimberly Berg

Kimberly Berg

Miami University of Ohio

Chadwick Curtis

University of Richmond - E. Claiborne Robins School of Business - Economics

Steven Lugauer

University of Kentucky - Department of Economics

Nelson C. Mark

University of Notre Dame - Department of Economics and Econometrics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2019

Abstract

We decompose the response of aggregate consumption to monetary policy shocks into contributions by households at different stages of the life cycle. This decomposition finds that older households have a higher consumption response than younger households. Amongst older households, the consumption response is also increasing in income. This, along with data on age-related net wealth, presents evidence for a wealth effect playing a role in driving the response patterns. This mechanism is studied further in a partial-equilibrium life-cycle model of consumption, saving, and labor-supply decisions. The model qualitatively explains the empirical patterns. Understanding the heterogeneity in consumption responses across age groups is important for understanding the transmission of monetary policy, especially as the U.S. population grows older.

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Suggested Citation

Berg, Kimberly and Curtis, Chadwick and Lugauer, Steven and Mark, Nelson Chung, Demographics and Monetary Policy Shocks (June 2019). NBER Working Paper No. w25970. Available at SSRN: https://ssrn.com/abstract=3411375

Kimberly Berg (Contact Author)

Miami University of Ohio ( email )

Oxford, OH 45056
United States

Chadwick Curtis

University of Richmond - E. Claiborne Robins School of Business - Economics ( email )

United States

Steven Lugauer

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

Nelson Chung Mark

University of Notre Dame - Department of Economics and Econometrics ( email )

442 Flanner
Notre Dame, IN 46556
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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