Monetary and Fiscal Policy when People have Finite Lives

Roger Farmer and Pawel Zabczyk

No 13432, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper incorporates realistic demographic structure into macroeconomic policy analysis by examining an overlapping generations model calibrated to match U.S. income data over the lifecycle. We provide explicit conditions for the existence of multiple dynamically efficient steady-state equilibria with positive debt levels for empirically relevant calibrations. Unlike representative agent frameworks, indeterminacy arises even with active monetary and fiscal policies. Following fundamental shocks, the model generates highly persistent swings in real interest rates consistent with evidence on long-horizon trends. Our tractable approach bridges theoretical models relying on infinite horizons and homogeneous agents with finite-lived heterogeneous consumers that populate actual economies.

Keywords: Ftpl; Indeterminacy; Olg model; Monetary policy; Monetary and fiscal policy (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 H62 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Monetary and Fiscal Policy when People Have Finite Lives (2026)
Working Paper: Monetary and Fiscal Policy When People Have Finite Lives (2019)
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