Working Paper

Monetary Policy over the Life Cycle

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.

Keywords: monetary policy; lifecycle; portfolio choice; nominal government debt;

JEL Classification: D15; E52; E62; G51;

https://doi.org/10.29338/wp2021-20a

Status: Published in 2021

Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2021-08-20

Number: 2021-20a

Note: Revised September 2021