How Does A Household's Exposure To Monetary Policy Vary Over The Life Cycle?

from the Atlanta Fed

A recent study by Feiveson et al. establishes the Federal Open Market Committee’s interest in the distributional effects of monetary policy. The size and the composition of household income exhibit large variation over the life cycle, so it is likely that household exposures to monetary policy also depend on age. This post summarizes new research by Daisuke Ikeda and me that uses a life cycle model to measure the age profile of household exposures to monetary policy. In the model, a higher nominal interest rate increases the wealth and consumption of households between the ages of 60 and 80, but it reduces the wealth and consumption of younger working-age households and the oldest retirees. The former group also has the highest net worth, and it follows that net worth and consumption inequality increase in the model.

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