Interest rate effects of demographic changes in a New-Keynesian life-cycle framework

Arbeitspapier

This paper develops a small-scale DSGE model which embeds a demographic structure within a monetary policy framework. We extend the tractable, though non-monetary overlapping-generations model of Gertler (1999) and present a small synthesis model which combines the set-up of Gertler with a New-Keynesian structure, implying that the short-run dynamics related to monetary policy are similar to the paradigm summarized in Woodford (2003). In sum, the model offers a New-Keynesian platform which can be used to investigate in a closed economy set-up the response of macroeconomic variables to demographic shocks, similar to technology, government spending or monetary policy shocks. Empirically, we use a calibrated version of the model to discuss a number of macroeconomic scenarios for the euro area with a horizon of around 20 years. The main finding is that demographic changes, while contributing slowly over time to a decline in the equilibrium interest rate, are not visible enough within the time horizon relevant for monetary policy-making to require monetary policy reactions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1273

Classification and Topics

• Classification: Wirtschaft ; Computable and Other Applied General Equilibrium Models ; Macroeconomics: Consumption; Saving; Wealth ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
• Subject: Demographic change ; DSGE modelling ; monetary policy ; Bevölkerungsentwicklung ; Geldpolitik ; Dynamisches Gleichgewicht ; Overlapping Generations ; Szenariotechnik ; Eurozone ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kara, Engin ; von Thadden, Leopold
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/153707
• Last update: 10.03.2025, 11:45 AM CET