Demographics, Monetary Policy, and the Zero Lower Bound

Marcin Bielecki, Michał Brzoza‐brzezina and Marcin Kolasa
Authors registered in the RePEc Author Service: Michal Brzoza-Brzezina

Journal of Money, Credit and Banking, 2023, vol. 55, issue 7, 1857-1887

Abstract: We develop a New Keynesian life‐cycle model to assess the importance of population aging for monetary policy. The model successfully matches the age profiles of consumption‐savings decisions made by European households. It implies that demographic trends contribute significantly to the decline of the natural rate of interest (NRI) and potential output growth, and exacerbate the risk of hitting the zero lower bound (ZLB), given the current inflation targets. Under a realistic assumption that the central bank updates its estimates of the NRI only with some lag, aging may additionally lead to a sizable and persistent deflationary bias, elevating the ZLB risk even further.

Date: 2023
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Citations: View citations in EconPapers (2)

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https://doi.org/10.1111/jmcb.12972

Related works:
Working Paper: Demographics, monetary policy, and the zero lower bound (2018)
Working Paper: Demographics, monetary policy and the zero lower bound (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:55:y:2023:i:7:p:1857-1887

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