مدل چرخه عمر پویای مکتب کینزی جدید: افزایش سن اجتماعی، جمعیتی و سیاست پولی

In this paper, we first construct a dynamic new Keynesian model that incorporates life-cycle behavior a laGertler [1999. Government debt and social security in a life-cycle economy. Carnegie–Rochester Conference Series on Public Policy 50, 61–110], in order to study whether structural shocks to the economy have asymmetric effects on heterogeneous agents, namely workers and retirees. We also examine whether considerations of life-cycle and demographic structure alter the dynamic properties of the monetary business cycle model, specifically the degree of amplification in impulse responses. According to our simulation results, shocks indeed have asymmetric impacts on different households and the demographic structure does alter the size of responses against shocks by changing the trade-off between substitution and income effects.

Societal aging is one of the biggest economic issues facing many industrial countries. In Japan, in particular, society is aging so rapidly that not only is the working population (those older than 15 but younger than 65) already shrinking, but the total population is also expected to start decreasing by 2007. This movement suggests that the central bank should have an even greater interest in how monetary policy affects heterogenous agents, namely workers and retirees, differently and how the consideration of this demographic structure may alter the reaction of variables to structural shocks.1 Seminal research by Woodford (2003) depicts the various forms of the dynamic New Keynesian model corresponding to different economic conditions and has had a significant influence on central banks’ views of monetary business cycle. However, to date very little research has paid attention to monetary business cycle model with heterogenous agents, particularly within a life-cycle setting.2 In this paper, we first set up a dynamic stochastic general equilibrium model with nominal rigidities and investment adjustment costs that incorporates life-cycle behavior a la Gertler (1999). Then, we show whether the structural shocks to the economy have asymmetric effects on heterogeneous agents and whether the considerations of the life-cycle and demographic structure alter the dynamic properties of the solution, under different settings of life-cycle behavior. 3 Of course, as mentioned in Bean (2004), it is true that ‘the glacial nature of demographic change appears to suggest that the implications for monetary policy should be modest’. We, however, believe that it becomes more important for central banks to acknowledge the asymmetric effects on heterogeneous agents within a life-cycle economy with a stationary population, since societal aging in many industrial countries necessitates the consideration of the distributional consequences of monetary policy. 4 Furthermore, central banks must always understand the monetary transmission mechanism as well as macroeconomic responses to structural shocks in detail. Therefore, we focus on the impulse responses of this life-cycle economy. We know that the impact of societal aging on general equilibrium has two separate aspects, and it is important to distinguish between the two. First, the ‘transition’ toward the aging society can be most naturally considered in terms of a macro shock, which will affect monetary policy decisions. Second, the impulse responses derived from a dynamic new Keynesian model in a ‘stationary population’ may be quite different for an elderly society than for a young society. For the purposes of the current paper, we focus on the second of these two aspects. Bean (2004) summarizes the previous findings in this field, pointing out their implications for a central bank: (1) demographic developments represent a macroeconomic shock, which may lead to abrupt movements in asset prices and sharp movements in saving behavior; (2)the natural rate of interest falls both along the transition path and in the steady state; (3) the natural rate of unemployment may also be affected through the matching mechanism5; (4) the wealth channel is likely to become a more important transmission channel of monetary policy than intertemporal substitution; (5) the Phillips curve is flatter due to immigration and the increased participation of retired workers whose supply of labor is considered to be relatively elastic; (6) the constituency for keeping inflation low will be larger thanks to higher average wealth accumulation; and (7) societal aging may induce diversification and risk-shifting with a securitized market rather than bank-intermediated finance, which has implications for financial stability. Although not all the topics raised by Bean (2004) can be covered in this paper, we formally verify (4) using the dynamic general equilibrium model with sticky price and life-cycle behavior. Yet, as societal aging deepens, although income effect becomes stronger for retirees, that of workers becomes weaker. Hence, in aggregate, a tightening monetary policy shock still has negative impacts on the aggregate demand. Even though retiree's consumption increases, worker's consumption or the investment needs to be lowered since there is no expansion in the production frontier. At the same time, we will show that (2) is not a general result due to the endogenized labor participation by retirees. Furthermore, we find that since retirees do not work as much as workers, they benefit less from improved technology, a point not by raised by Bean (2004). Therefore, the monetary response to a positive technology shock can be smaller in a greyer society. Anecdotal evidence on these points abounds, but there have been very few studies that have tackled this problem in a theoretically consistent dynamic general equilibrium framework, 6 which is the workhorse model for modern monetary policy analysis. Our main conclusions are as follows. Since retired people rely more on interest income than on wages from their labor supply, shocks indeed have different impacts on different households. Furthermore, the demographic structure does alter the size of the response to shocks by changing the degree of the trade-off between substitution and income effects. Therefore, societal aging and life-cycle considerations, have important implications for monetary policy. Another interesting point is to compare optimal monetary policy in this life-cycle economy to the one obtained in a standard model with homogeneous agents. Stochastic welfare analysis, however, raises difficult issues such as what discount rate should be used by firms and which welfare measures are appropriate with the setting of the model in this paper. As for the latter, it is not trivial to compute aggregate welfare with heterogenous agents. In other words, it is difficult to weigh the welfare of each heterogenous agent in order to obtain aggregate welfare measure. The former is an especially large concern with incomplete markets and heterogenous agents, because marginal utility growth rates are no longer equalized across agents and therefore the choice of the appropriate discount factor is no longer obvious. 7 Thus, we restrict our analysis to the case of perfect foresight with one-time unanticipated shocks that may be auto-correlated as examined in Ghironi (2006), Kilponen and Ripatti (2006), and Kilponen et al. (2006). In a perfect-foresight setting, all assets including the one-period bond must yield the same return. As a result some very difficult (and as yet unsolved) problems regarding asset valuation can be side stepped. This paper is put together as follows. In section two, we describe the model employed in this analysis. Then, section three discusses the nature of our stationary population under different demographic structures. We show that the natural rate of interest is quite different among the different demographic setups. In section four, we show the impulse responses and show that shocks indeed have different impacts on different households and the demographic structure does alter the size of responses to shocks by changing the trade-off between substitution and income effects. Finally, section five concludes.

In this paper, we construct a dynamic new Keynesian life-cycle model based on Gertler (1999). We show that it is of great importance for a central bank to consider the demographics for sound monetary policy. First, the natural rate of interest differs as demographics change. Second, the structural shocks to the economy have asymmetric effects on heterogeneous agents, namely workers and retirees. Differences in the labor productivity between workers and retirees make a positive technology shock enhance the worker's but decrease the retiree's welfare. Furthermore, due to the higher reliance on financial assets, retirees become better off with a positive shock on nominal interest rates. This, especially, implies that a central bank may face a severe policy trade-off. If the central bank cares more about retirees, or if monetary policy is determined mainly through opinions of older people because of their bargaining power in politics over younger people, there may be a bias towards higher nominal interest rates. Yet, even though societal aging deepens, in aggregate, a tightening monetary policy shock still has negative impacts on the aggregate demand since worker's consumption or the investment need to be lowered while consumption of retirees increase. Finally, the demographic structure changes the dynamic properties of the solution, namely the degree of amplification in the impulse responses. The less retirees work under stationary population, the less volatile macroeconomic variables are against shocks. Under such circumstances, a positive technology shock does not increase retiree's labor supply and so the negative effects from a positive monetary policy shock are alleviated by an increase in retiree's consumption. In particular, the latter two points are very relevant to the recent economy developments in Japan, where the total population is expected to start decreasing and baby boomers are to retire en masse around 2007. Depending on whether retirees continue to work or not, macroeconomic responses to shocks could be dramatically changed in the foreseeable future. Not only could the effects unanticipated changes in monetary policy change but also a positive monetary policy shock may even temporarily increase output and inflation. Acknowledgments Previously circulated under the title: ‘Monetary Policy in a Life-Cycle Economy: Distributional Consequences of Monetary Policy Rule.’ We thank Martin Bodenstein, Dale Henderson, Keisuke Otsu, Laura Piscitelli, Antti Ripatti, Masashi Saito and three anonymous referees for invaluable inputs and have benefited from discussions with Stefania Albanesi, Kosuke Aoki, David Aikman, David Backus, Tamin Bayoumi, Toni Braun, Larry Christiano, Shigeru Fujita, Mark Gertler, Marc Giannoni, Fumio Hayashi, Michel Juillard, Nobuhiro Kiyotaki, Gian Maria Milessi-Ferretti, Toshi Sekine, Justin Svec, Lars Svensson, Mike Woodford, Tack Yun and Feng Zhu. We also thank participants at the BIS workshop, the BOC seminar, the BOJ-IMES seminar, the Columbia University macro colloquium, the macro workshop at the University of Tokyo, Central Bank Workshop on Macroeconomic Modeling at the Reserve Bank of South Africa, and the conference: ‘DSGE Modeling in Policy Making Institutions: Progress and Prospects’ organized by the ECB, the FRB, the IMF, the Georgetown University, the Goethe University and the Journal of Economic, Dynamics and Control at the FRB. The views expressed in this paper should not be taken to be those of the Bank of Japan nor any of its respective monetary policy or other decision making bodies. Any errors are solely the responsibility of the authors.