INTEREST RATE EFFECTS OF DEMOGRAPHIC CHANGES IN A NEW KEYNESIAN LIFE-CYCLE FRAMEWORK

Engin Kara and Leopold von Thadden

Macroeconomic Dynamics, 2016, vol. 20, issue 1, 120-164

Abstract: This paper develops a small-scale DSGE model that embeds a demographic structure within a monetary policy framework. We extend the nonmonetary overlapping-generations model of Gertler and present a small synthesis model that combines the setup of Gertler with a New Keynesian structure, implying that the short-run dynamics related to monetary policy can be compared with that of the standard New Keynesian model. In sum, the model offers a New Keynesian platform that can be used to characterize the response of macroeconomic variables to demographic shocks, similarly to the responses to technology or monetary policy shocks. We offer such characterizations for flexible and sticky price equilibria. Empirically, we calibrate the model to demographic developments projected for the euro area. The main finding is that the projected slowdown in population growth and the increase in longevity contribute slowly over time to a decline in the equilibrium interest rate.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Interest rate effects of demographic changes in a New-Keynesian life-cycle framework (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:20:y:2016:i:01:p:120-164_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().