Age Structure and the Impact of Monetary Policy
John V. Leahy
- American Economic Journal: Macroeconomics (Forthcoming)
We study whether the effects of monetary policy are dependent on the age structure of the population.
We exploit cross-sectional variation in the response of US states to an identified monetary
policy shock. We find that there are three distinct age groups. In response to an increase in interest
rates, the responses of private employment and personal income are weaker the greater
the share of population under 35 years of age, are stronger the greater the share between 40
and 65 years of age, and are relatively unaffected by the share older than 65 years. We find
that all age groups become more responsive to monetary policy shocks when the proportion of
middle aged increases. We provide evidence consistent with middle aged entrepreneurs starting
and expanding businesses in response to an expansionary monetary shock.
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