Frisch seminar: Martin Blomhoff Holm
Monetary Policy under Demographic Transitions
Abstract: The share of the population above 65 years old has doubled since 1950 in many high-income countries, and it is projected to double once more during the 21st century. This paper investigates the role of population aging for monetary transmission. We build a New-Keynesian model consistent with recent empirical micro-level evidence on weaker monetary transmission by age. Our main result is that population aging has weakened monetary transmission substantially since 1970 and that this weakening will continue going forward. An immediate implication is that monetary policy may eventually vanish as a stabilization tool.