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Demographic aging and the New Keynesian Phillips Curve

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  • Ambrocio, Gene

Abstract

I document a statistical link between old-age dependency ratios and average markups. I propose that a mechanism whereby households develop deep habits in consumption as they age could explain this feature of the data. I show that when this mechanism is embedded in an overlapping generations New Keynesian model, the slope of the New Keynesian Phillips Curve flattens as the population ages. Further, the contractionary effects of monetary policy surprises on output are amplified. These results suggest that the challenges faced by monetary policy may become more pronounced as populations age.

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  • Ambrocio, Gene, 2023. "Demographic aging and the New Keynesian Phillips Curve," Bank of Finland Research Discussion Papers 16/2023, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:279566
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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