Demographics and Monetary Policy Shocks

Kimberly Berg, Chadwick Curtis, Nelson Mark and Steven Lugauer

No 409, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We study how consumption of households at different stages of the life cycle responds to monetary policy shocks. We find that older households have a higher consumption re- sponse 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 mecha- nism is studied further in a partial-equilibrium life-cycle model of consumption, saving, and labor-supply decisions. The model qualitatively explains these empirical patterns. Understanding the heterogeneity in consumption responses across age groups is im- portant for understanding the transmission of monetary policy, especially as the U.S. population grows older.

Date: 2019
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Journal Article: Demographics and Monetary Policy Shocks (2021)
Working Paper: Demographics and Monetary Policy Shocks (2019)
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