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Monetary Policy over the Life Cycle

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  • R. Anton Braun
  • Daisuke Ikeda

Abstract

A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household’s exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household’s net worth, disposable income and consumption depend on its age.

Suggested Citation

  • R. Anton Braun & Daisuke Ikeda, 2021. "Monetary Policy over the Life Cycle," FRB Atlanta Working Paper 2021-20a, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:93475
    DOI: 10.29338/wp2021-20a
    Note: Revised September 2021
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    1. Monetary Policy over the Lifecycle
      by Christian Zimmermann in NEP-DGE blog on 2021-09-23 19:32:42

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    1. Fadejeva, Ludmila & Kantur, Zeynep, 2023. "Wealth distribution and monetary policy," Economic Modelling, Elsevier, vol. 125(C).
    2. Reona Hagiwara, 2023. "Aging, Health Risk, and Interest Rates," Working Papers 2303, Waseda University, Faculty of Political Science and Economics.

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    More about this item

    Keywords

    monetary policy; lifecycle; portfolio choice; nominal government debt;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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