MACRO: Monetary Policy, Wealth Inequality, and Lifecycle Dynamics; Professor Heejeong Kim (Concordia University)

Abstract

This paper examines how the redistributive effects of monetary policy vary across age groups and the extent to which life-cycle features shape its transmission. We develop a Heterogeneous Agent New Keynesian Overlapping Generations (HANK-OLG) model in which households accumulate both liquid and illiquid assets. The model replicates empirically plausible distributions of income, wealth, and portfolio composition across the life cycle. Our results show that age plays a critical role in monetary transmission. Expansionary monetary policy benefits middle-aged households the most, as they experience larger gains in labor and capital income from increased economic activity. In contrast, older households exhibit smaller—but more persistent—consumption responses due to their shorter remaining lifespans. These findings imply that in aging economies, aggregate consumption responses to monetary policy may differ significantly from those in younger populations.