Arbeitspapier

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

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.

Language
Englisch

Bibliographic citation
Series: ECB Working Paper ; No. 1273

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

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

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Kara, Engin
  • von Thadden, Leopold
  • European Central Bank (ECB)

Time of origin

  • 2010

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