Demographic aging and the New Keynesian Phillips Curve

Gene Ambrocio

No 16/2023, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: I document a statistical link between old-age dependency ratios and average markups. I propose that a mechanism whereby households develop deep habits in consumption as they age could explain this feature of the data. I show that when this mechanism is embedded in an overlapping generations New Keynesian model, the slope of the New Keynesian Phillips Curve flattens as the population ages. Further, the contractionary effects of monetary policy surprises on output are amplified. These results suggest that the challenges faced by monetary policy may become more pronounced as populations age.

Keywords: population aging; Phillips curve; deep habits; market power; markups (search for similar items in EconPapers)
JEL-codes: D11 E21 E32 E52 J11 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:279566

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