Monetary Policy and Consumer Spending by Different Age Groups
Older households are wealthier than younger ones, and their consumption spending is more sensitive to policy-induced changes in asset values.
Does monetary policy have the same effect on the consumption spending of households at various points in the lifecycle? Kimberly A. Berg, Chadwick C. Curtis, Steven Lugauer, and Nelson C. Mark explore this question in Demographics and Monetary Policy Shocks (NBER Working Paper 25970). They conclude that instruments of monetary policy that affect asset values, such as reductions in interest rates that tend to raise the value of long-term assets such as government bonds, have a greater impact on older households than on those headed by young or middle-aged Americans. On average, older households hold more wealth, and depend less on labor income to support their consumption. This makes their consumption spending increase more than that of younger households when expansionary monetary policy induces an increase in asset values.
Brexit Uncertainty Is Taking a Toll on the British Economy
To study how monetary policy affects consumer spending at different ages, the researchers draw on data from the Consumer Expenditure Survey. They sort, then aggregate, households into three categories by the age of the head of household: young (25-34 years old), middle-aged (35-64), and old (65+). They also use four different measures of changes in the posture of monetary policy, capturing shifts between expansionary and contractionary regimes.
— Jennifer Roche
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