Demographic Aging and the New Keynesian Phillips Curve

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.

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Gene Ambrocio (Bank of Finland)

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IWH, conference room and via Zoom

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Gene Ambrocio is an economist at the Bank of Finland with research interests in information and financial frictions in Macroeconomics and Finance.

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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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