SSRN Id3779062 PDF

The Effects of Monetary Policy on
Consumption: Workers vs. Retirees
Myunghyun Kim*, Sang-yoon Song**
The views expressed herein are those of the authors and do not necessarily
reflect the official views of the Bank of Korea. When reporting or citing this
paper, the authors’ names should always be explicitly stated.
* Assistant Professor, Department of Economics, Sungkyunkwan University, Tel: +82-2-760-0612, E-mail:

mhkim7812@skku.edu.
** Economist, Micro & Institutional Economics Team, Economic Research Institute, Bank of Korea, Tel:
+82-2-759-5478, E-mail: sy.song@bok.or.kr.
We would like to thank Sung Ho Park, Hyunjoo Ryou, Daeyup Lee, Young Jae Lee and seminar
participants at the Bank of Korea for helpful comments. All remaining errors are ours.
Electronic copy available at: https://ssrn.com/abstract=3779062

Contents
I. Introduction ·
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II. Empirical Evidence ·

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III. Description of Life-cycle Model ·

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·32

The Effects of Monetary Policy on
Consumption: Workers vs. Retirees
This paper explores the heterogeneous effects of monetary policy on

consumption between workers and retirees. Using household-level data from the
U.S., Italy, Japan and Korea, we first show that the consumption of retirees
responds less sensitively to monetary policy shocks than that of workers, and
that the different weight of interest income in the total income caused by the
difference in financial asset holdings between these two groups is one of the
main sources of this heterogeneity. We then extend a life-cycle model a la
Gertler (1999) by adding sticky prices and monetary policy in order to study the
mechanism of the differential effects on consumption of workers and retirees of
monetary policy shocks. Consistent with the empirical evidence, the simulation
results of the model show that the consumption of retirees is less sensitive to
monetary policy shocks than that of workers, and that the larger weight of
interest income for retirees compared to that of workers plays a key role in
generating these results. The results of this paper imply that population aging
can weaken the effectiveness of monetary policy.
Keywords: Monetary Policy, Consumption, Population Aging, Life-cycle Model
JEL Classification: E21, E52, J11, D12

1 BOK Working Paper No. 2021-4
Ⅰ. Introduction
A crucial pipeline of monetary policy transmission to the real economy

is consumption. Identifying how household consumption responds to monetary
policy shocks is therefore essential in assessing the effectiveness of
monetary policy. In this paper, we investigate the heterogeneous responses
between the consumptions of workers and retirees to monetary policy shocks,
focusing on the role of the different weights of interest income in their total
incomes caused by the different interest-sensitive financial assets they hold,
such as deposits, savings or government bonds, looking for similarities or
differences between the two groups.
Intuitively, monetary policy can affect worker and retiree consumption
differently through two channels. The first is the debt channel. Since workers
usually have more debt, such as mortgages, than retirees, and thereby they are
more responsive to changes in interest rates, their consumption can be more
sensitive to monetary policy than retiree consumption.1) The second is the
income source channel. In general, the main source of worker income is labor
income, i.e., wages, while that of retiree income is financial income, such as
interest earnings, or social benefits. Since a contractionary monetary policy leads
to a fall in economic activity, it has an adverse influence on labor income. In
contrast, raising interest rates increases interest earnings from savings. This can
lead to the heterogeneous consumption responses between workers and retirees
to monetary policy. We will put forward empirical and theoretical analyses to
show the validity of the second channel.
The sustained process of population aging, as observed in most
industrialized countries, constitutes a major concern for monetary policy
authorities. This may be attributed to the suggestion that the effects of
monetary policy can be heterogeneous across age groups, and thus
demographic change can affect the effectiveness and pass-through effects
of monetary policy. Although researchers and central bankers have broadly
1) For instance, using the U.S. Consumer Expenditure Survey (CEX), Wong (2016) shows that this channel
functions in the U.S.

The Effects of Monetary Policy on Consumption: Workers vs. Retirees 2
recognized that population aging can affect the transmission of monetary

policy to the real economy, few theoretical and empirical studies exist on
this issue, particularly with regards to the associations between population
aging, consumption, and monetary policy. By providing empirical evidence
on the heterogeneous responses between workers' and retirees'
consumptions to monetary policy shocks and a possible source for the
heterogeneity, and by proposing a theoretical mechanism for this, we fill this
gap in the literature.
Specifically, we first empirically investigate the consumption responses of
workers and retirees to monetary policy shocks. We use U.S. household-level
data and three different monetary policy shocks identified by different
methodologies: the traditional vector autoregression (VAR) model as in Coibion
(2012), the narrative measure by Romer and Romer (2004), and the VAR model
with sign restrictions as in Uhlig (2005, 2017). We will show that in the U.S.
the consumption of retirees is less sensitive to monetary policy shocks than that
of workers, regardless of which shocks are used. Then, using the household-level
data from four countries (U.S., Japan, Italy and Korea) and monetary policy
shocks identified by the methodology of Coibion (2012) that can be easily applied
to those countries, we will show that the difference of interest-sensitive financial
asset holdings between workers and retirees is the main source that induces the
heterogeneous responses between the consumptions of the two groups to
monetary policy shocks.
In order to study the mechanism for the heterogeneous effects on the
consumption of workers and retirees to monetary policy shocks, we then
extend a life-cycle model a la Gertler (1999) by adding sticky prices and
monetary policy. According to the impulse response results of the model,
a contractionary monetary policy shock has two opposite effects on
households' income in our model. On one hand, it decreases real wage, which
has a negative impact on labor income. On the other hand, it brings about
a rise in the real interest rate, which has a positive effect on interest income.
In our model, the weight of the labor income of workers in their total income
is higher than that of retirees, which is consistent with the data. Alternatively,

the weight of the interest income of workers in their total income is lower
than that of retirees. The shock thus has a more negative influence on
workers' income than on retirees' income. As a consequence, worker
consumption falls by more than that of retirees in response to the shock.
This result is consistent with the empirical evidence, described above.
Using the model, we additionally implement an experiment to look at the
effects of a rise in the relative labor productivity of retirees to workers on
the responses of worker and retiree consumption to monetary policy shocks.
In the event that retirees have a higher relative labor productivity, they
decrease their consumption by more in response to a contractionary monetary
policy shock compared to the model with a lower relative labor productivity.
Naturally, the higher the relative labor productivity of retirees, the higher
the real wage they earn, and thus the more labor they supply. The weight
of the labor income of retirees in their total income thus becomes larger
than in the model with a lower relative labor productivity, meaning that the
shock decreases retirees' income more. Consequently, in this case there is
a larger fall in retirees' consumption following the shock.
There is a relatively small body of literature that explores the
heterogeneous effects of monetary policy on consumption across age groups.
Similar to our study, Fujiwara and Teranishi (2008) add New Keynesian
structures to the model of Gertler (1999) to show the less sensitive
responses of retiree consumption to monetary policy shocks, and thus our
model is close to their model.2) Wong (2016) also shows that consumption
of younger people is more responsive to monetary policy shocks. The source
of this phenomenon, however, is different from ours. That is, according to
Wong, this is because young homeowners are more active in refinancing their
home mortgage loan than old homeowners. While our study focuses on the
differences in financial assets holdings workers and retirees,3) Wong pays
2) Kara and von Thadden Leopold (2016) also consider New Keynesian features in the model of Gertler
(1999) to study impacts of demographic changes on the equilibrium interest rate.
3) To be specific, the difference between the weight of interest or labor income in the total income for workers
and retirees.

more attention to the different financial debts across age groups. By

developing a New Keynesian DSGE model with heterogeneous households,
Yoshino and Miyamoto (2017) show that in an economy with more workers,
an expansionary monetary policy shock boosts aggregate demand more than
in an economy with fewer workers, due to the higher total labor supply that
leads to higher consumption in the economy.
The rest of this paper proceeds as follows. In Section Ⅱ, we provide
empirical evidence that retiree consumption responds less sensitively to
monetary policy shocks than worker consumption by using data from four
countries. Section Ⅲ describes the life-cycle model. Section Ⅳ presents
model calibration and simulation results of the model. Further experiments
that consider a different relative labor productivity of retirees from the
baseline model are also conducted in Section Ⅳ. Section Ⅴ concludes.
Ⅱ. Empirical Evidence
1. Identification of Monetary Policy Shock Series
To investigate the heterogeneous effects of monetary policy shocks on

consumptions of workers and retirees, we first need to identify the monetary
policy shocks over the analysis periods. The identifications of monetary
policy shock series are implemented by three different methodologies: the
traditional VAR model as in Coibion (2012), the narrative measure by Romer
and Romer (2004), and the VAR model with sign restrictions as in Uhlig
(2005, 2017). Among the three monetary policy shock series, we choose
the shock series identified by the methodology of Coibion (2012) as our main
shock series, for two reasons as below. First, the three series yield very
similar results, when we apply them to U.S. data. This means that our
empirical model is robust to different measures of monetary policy shocks.
Second, we have difficulties in obtaining other shock series for all countries
(i.e., the U.S., Japan, Italy and Korea), with the exception of the U.S., due

to a lack of data. In contrast, the methodology of Coibion (2012) can be

easily applied to all four countries.
Specifically, the methodology of Coibion (2012) to obtain monetary policy
shock series is to construct a VAR including five variables: the log industrial
production, the unemployment rate, the log consumer price index (CPI), the
log commodity price index, and the policy rate.4) Following Christiano,
Eichenbaum and Evans (1999) and Coibion (2012), we order the five
variables as listed above. Although Christiano, Eichenbaum and Evans (1999)
do not include the unemployment rate in their VAR, we do in order to have
an additional measure of the real impact of the shocks following Coibion
(2012).5) The sample period is from January 1980 to December 2017 for
the U.S. and Japan, and it is from January 2001 to December 2017 for Korea
and Italy.6) We identify the series of monetary policy shocks monthly with
12 lags in the VAR model, and then average them into annual-level monetary
policy shocks.
Next, the shock series of Romer and Romer (2004) are identified by using
the variables in the Federal Reserve's information set such as the intended
federal fund rate target obtained from a narrative approach and Greenbook
forecasts. We make use of their monetary policy shock series from 2005 to
2011.7) As for the shock series identified by Uhlig's (2005, 2017) rejection
method, we estimate a quarterly VAR model with sign restrictions including
five variables: the log real GDP, the log GDP deflator, the log commodity price
index, the policy rate, and M1.8) We impose sign restrictions9) and identify
4) The source of the commodity price index is the Commodity Research Bureau. The source of other variables
is the Federal Reserve Economic Data (FRED) of the St. Louis Fed.
5) The inclusion of the unemployment rate does not greatly change the estimation results according to Coibion
(2012).
6) In the late 1990s, Korea and Italy experienced big structural breaks in their economies and monetary policy
schemes due to the foreign exchange crisis and to participation to the European Central Bank, respectively.
We thus set shorter sample periods for Korea and Italy.
7) The extended series of monetary policy shocks of Romer and Romer (2004) are obtained from
Breitenlechner's website (https://eeecon.uibk.ac.at/~breitenlechner/research.html).
8) Uhlig (2005) includes non-borrowed reserves and total reserves in the VAR model. However, Uhlig (2017)
includes M1 instead of those, since the two reserves show big differences before and after the global
financial crisis. Hence, we follow Uhlig (2017), rather than Uhlig (2005), in choosing the variables.

monetary policy shocks as in Uhlig (2005).
2. Data and Methodology
Data We make use of household-level survey datasets from four

countries: the Korean Labor and Income Panel Study (KLIPS) for Korea;
the Keio Household Panel Study (KHPS) for Japan; the Survey of Household
Income and Wealth (SHIW) for Italy; and, the Panel Study of Income
Dynamics (PSID) for the U.S. The common feature of these household-level
longitudinal datasets is to collect detailed information about income, financial
assets, consumption, and demographic characteristics of representative
households in each country. The survey data for Korea and Japan have been
collected every year, and the other two survey data have been collected every
two years. Since the SHIW and PSID have been collected on even-numbered
and odd-numbered years, respectively, our analysis includes at least the
household-level information of three countries in a single year. The measure
of consumption used in this paper includes all non-durable spendings and
excludes rents or financial costs, such as mortgage payments or insurance.
As the PSID has provided a detailed list of consumption items, such as
household furnishing, clothing, trips, and other recreational activities since
2005, we conduct our analysis using the 2005 to 2017 surveys.10)
A key variable in our empirical analysis is financial assets of households.
Since the survey questions about the financial assets that households hold
are not the same across countries, the measure of financial assets is slightly
different among them. While we use all kinds of savings and government
bonds as financial assets for the U.S. and Italy,11) only bank savings accounts
9) Specifically, an expansionary policy shock decreases the federal fund rate for two quarters and raises the GDP
deflator, commodity prices and M1 for two quarters. For the detailed methodology, please see Uhlig (2005).
10) Before 2005, the consumption data in the PSID is limited, confined to food, utility, and transportation
expenditures.
11) To be specific, the financial assets of U.S. households include checking, savings, money market funds
(MMF), certificates of deposit (CD), government bonds, and treasury bills; those of Italian households
include bank deposits, CDs, repos, postal deposits and savings certificates, and government securities.

are used for Korea and Japan. This is because the KLIPS and KHPS do not
provide more detailed categories. Moreover, as they also do not provide data
about bonds or equities that a household may hold separately, we do not
include them as financial assets. Since equities do not generate any interest
income, they are not of interest in this paper. All monetary variables used
in this paper are deflated using the CPI of each country, and they are
standardized to control the differences in monetary units across countries.12)
Our samples are restricted to households heads between the ages 25 and 85.
Empirical Methodology Using the household-level data and identified
monetary policy shocks, we estimate the following regression:
log                ×                   (1)
where  is non-durable consumption of household  of country  in year

 .  is the identified monetary policy shocks of country  in year
 .  is a dummy variable that has a value of 1 if a household  's
head is older than retirement age, which is assumed to be 65.  is a set
of variables including  and other control variables that can affect
household  's consumption, such as income, the number of family members
(square roots), household head's age and age squared (log), and financial assets.
 is the household-level fixed effect. Since the standardized variables
(consumption, income, and financial assets) have negative values, we use the
inverse hyperbolic sine to transform them into logarithmic variables.13) In
equation (1), the focus of our empirical analysis is on the interaction between
monetary policy shocks and the dummy variable for retirees. That is, we focus
on the sign, magnitude and significance of  . If  is positive and significant,
12) There are two methods to control the differences of monetary unit across countries. The first is to use the
exchange rate of each monetary unit against the U.S. dollar. The second is the standardization of each
monetary unit to have a mean of zero and a standard deviation of 1. We tried both methods and the results
are very similar.
13) See Dynan (2012) for detailed information about the inverse hyperbolic sine transformation.

this suggests that the consumption of retirees responds less sensitively to

monetary policy shocks than that of workers.
To show that one of the main sources that induces the heterogeneous
sensitivity between the consumption of workers and retirees to monetary
policy shocks is different financial asset holdings across age groups, we add
an interaction term between monetary policy shocks and log financial assets
as an independent variable.
log                 ×      

(2)
     ×                  
where  is financial asset holdings of household  of country  in year

 . Other variables and indexes in equation (2) are the same as those in equation
(1). If the heterogeneous sensitivity between the consumption of workers and
retirees to monetary policy shocks comes partly from different financial asset
holdings between the two groups, the added interaction term,
 ×  , would affect the sign, magnitude and significance of  .
Thus, in equation (2), we focus on the changes of  according to the
consideration of the interaction term between monetary policy shocks and the
financial asset holdings of households.
3. Empirical Results
This section consists of two parts. In the first part, using the three
different monetary policy shock series for the U.S., we show the
heterogeneous responses between the consumptions of workers and retirees
to monetary policy shocks for U.S. households. We demonstrate that the
consumption of retirees responds less sensitively than that of workers to
monetary policy shocks in the U.S., regardless of shock measures. In the
second part, using household-level data from four countries and monetary
policy shocks identified by the methodology of Coibion (2012), we show that
differences in financial asset holdings across age groups is one of the main

sources for the heterogeneous responses between the consumptions of

workers and retirees to monetary policy shocks.
3.1 U.S. Monetary Policy Shocks and Consumption: Workers vs. Retirees
Table 1 shows the regression results of equation (1) for U.S. households.
For brevity, we do not report the estimated coefficients of control variables.
Column (1) in Table 1, estimated by using monetary policy shocks identified
by the methodology of Coibion (2012), illustrates the negative and significant
association between monetary policy shocks and consumption. This result
indicates that contractionary (expansionary) monetary policy shocks
significantly decrease (increase) households' consumption. In column (2),
we add a dummy variable for retirees and an interaction term between
monetary policy shocks and the dummy variable as independent variables.
The estimated coefficient of the interaction term is positive and significant.
This result suggests that the effects of monetary policy shocks on the
Table 1. The Effects of Monetary Policy Shocks on Consumption: Evidence

from Three Different Shocks (U.S.)
(1) (2) (3) (4) (5) (6)
Coibion (2012) Uhlig (2005, 2017) Romer and Romer (2004)
-0.086*** -0.092*** -0.158*** -0.165*** -0.093*** -0.099***
MP Shocks
(0.008) (0.009) (0.009) (0.010) (0.009) (0.009)
0.047* 0.056** 0.054**
MP Shocks × Retiree
(0.027) (0.028) (0.027)
-0.091*** -0.094*** -0.083***
Retiree
(0.014) (0.014) (0.013)
4.822*** 4.821*** 4.831*** 4.831*** 4.798*** 4.797***
Constant
(0.053) (0.053) (0.053) (0.053) (0.053) (0.053)
Household Fixed Effects Yes Yes Yes Yes Yes Yes
Control Variables Yes Yes Yes Yes Yes Yes
Adj. R-squared 0.59 0.59 0.59 0.59 0.58 0.58
N 51,058 51,058 51,058 51,058 27,920 27,920
Notes: Monetary policy shocks identified by the methodologies of Coibion (2012), Uhlig (2005, 2017), and
Romer and Romer (2004) are used in columns (1) and (2), columns (3) and (4) and columns (5)
and (6), respectively. All models include household-level fixed effects and various control variables.
The sample period is 2005-2017 in columns (1)-(4) and 2005-2011 in columns (5)-(6). Standard
errors in parentheses are clustered by households. *, **, and *** indicate the 10%, 5%, and 1%
significance levels, respectively.

consumptions of both workers and retirees are heterogeneous and that the
consumption of retirees falls by less than that of workers in response to
contractionary monetary policy shocks.
In columns (3) to (6), we run the same regressions as in columns (1) and
(2), using the monetary policy shock series identified by the methodologies of
Romer and Romer (2004) and of Uhlig (2005, 2017).
The results show that while the magnitudes of estimated coefficients are
slightly different from the results of columns (1) and (2), the directions
and significance of them are maintained. Specifically, the coefficients of the
interaction terms between monetary policy shocks and the dummy variable
for retirees are positive and significant. This demonstrates that the results
shown in columns (1) and (2) are robust in employing other identification
schemes for monetary policy shocks.
3.2 Source of the Heterogeneous Responses: Evidence from Four

Countries
Using monetary policy shock series identified by the methodology of Coibion

(2012), Table 2 shows the regression results of equations (1) and (2) for the
U.S., Italy, Japan and Korea. In columns (1) and (2), our concern is to look
at whether or not the consumption response of workers and retirees to monetary
policy shocks is heterogeneous in the sample covering all countries. We thus
conduct the regressions in all samples in columns (1) and (2). The results of
column (1) in Table 2 show that the results for the U.S. as shown in Table
1 also hold for all four countries. The coefficient of the interaction term between
monetary policy shocks and a dummy variable for retirees is positive and
significant. In column (2), we additionally include an interaction term between
monetary policy shocks and financial asset holdings of households. If the results
shown in column (1) are affected by the difference between financial asset
holdings of workers and retirees, the inclusion of the interaction term has to
exert an influence on the estimated coefficient of the interaction term between
monetary policy shocks and the retiree dummy variable. Column (2) shows that,
by adding the interaction term between monetary policy shocks and financial

Table 2. The Heterogeneous Effects of Monetary Policy Shocks on

Consumption: The Role of Financial Asset Holdings of Households
(1) (2) (3) (4) (5) (6)
　 Financial Asset Holdings of Retiree
　 All Higher than Worker Similar with Worker
(U.S. and Japan) (Italy and Korea)
-0.071*** -0.068*** -0.104*** -0.101*** -0.027*** -0.027***
MP Shocks
(0.006) (0.006) (0.010) (0.010) (0.006) (0.006)
0.063*** 0.063*** 0.049* 0.042 0.019* 0.019*
MP Shocks × Retiree
(0.010) (0.010) (0.027) (0.028) (0.010) (0.010)
0.033*** 0.026* 0.005
MP Shocks × FA
(0.007) (0.015) (0.008)
-0.018** -0.018** 0.007 0.007 -0.031*** -0.031***
Retiree
(0.008) (0.008) (0.014) (0.014) (0.009) (0.009)
0.028*** 0.028*** 0.069*** 0.067*** 0.004 0.004
FA
(0.003) (0.003) (0.006) (0.006) (0.003) (0.003)
Constant -7.314*** -7.31*** -5.568*** -5.562*** -17.439*** -17.437***

　 (0.472) (0.472) (0.589) (0.589) (0.786) (0.786)
Household Fixed Effects Yes Yes Yes Yes Yes Yes
Control Variables Yes Yes Yes Yes Yes Yes
Adj. R-squared 0.7 0.7 0.56 0.56 0.81 0.81
N 166,287 166,287 69,766 69,766 96,521 96,521
Notes: “FA” means financial asset holdings of households. The sample period are from 2005 and 2017. The
monetary policy shocks of each country are identified by a five-variable VAR model following Coibion
(2012). The numbers of observations are 51,508 for the U.S., 18,258 for Japan, 69,378 for Korea, and
27,141 for Italy. All models include household-level fixed effects and various control variables.
Standard errors in parentheses are clustered by households. *, ** and *** indicate the 10%, 5%, and
1% significance levels, respectively.
asset holdings of households, there is no change in the estimated coefficient

of the interaction term (0.063), indicating that the effect of the difference
between financial asset holdings of workers and retirees is modest.
In columns (3) to (6), we run the same regressions as columns (1) and (2)
by dividing the four countries into two groups: countries where financial asset
holdings of retirees are higher than those of workers (U.S. and Japan) and
those where retirees' financial asset holdings are similar to or slightly smaller
than those of workers (Italy and Korea). The ratios of retirees' financial asset
holdings to those of workers are 1.74, 1.85, 1.08, and 0.86 in the U.S., Japan,
Italy and Korea, respectively. This may be because retirees in Italy and Korea
prefer real assets, such as housings and real estate, instead of financial assets.

The results illustrated in columns (3) and (4) show that the differences
between financial asset holdings of workers and retirees affects the
heterogeneous sensitivity between the consumptions of the two groups to
monetary policy shocks in the U.S. and Japan. The estimated coefficients
of the interaction term between monetary policy shocks and the retiree
dummy change from 0.049 to 0.042 by considering the interaction term
between monetary policy shocks and financial asset holdings that is
significant at the 10% level (0.026). Moreover, the estimated coefficient of
the interaction term between monetary policy shocks and the retiree dummy
is no longer significant at the 10% level in column (4) by adding the
interaction term between monetary policy shocks and financial asset holdings.
Meanwhile, looking at the results for Italy and Korea (columns (5) and (6)),
the retirees' financial asset holdings are not a source of heterogeneous
sensitivity between the consumptions of workers and retirees to monetary
policy shocks. The estimated coefficients of the interaction term between
monetary policy shocks and the retiree dummy do not change by adding the
interaction term between monetary policy shocks and financial asset holdings
(0.019 in column (5) vs. 0.019 in column (6)). These results shown in
columns (3) to (6) imply that the modest effect of financial asset holdings
on retirees' consumption responses to monetary policy shocks that is shown
in column (2) is due to the Italy and Korea, where the difference between
the financial asset holdings of workers and retirees is not that large.
Overall, the results presented in Table 2 indicate that the consumption
of retirees responds less sensitively to monetary policy shocks than that of
workers, and that the difference between interest-sensitive financial asset
holdings of workers and retirees is one of the main sources of the
heterogeneous responses between the consumptions of the two groups to
monetary policy shocks.

Ⅲ. Description of Life-cycle Model
This section describes the life-cycle model that adds sticky prices and
monetary policy to the tractable life-cycle model of Gertler (1999). There are
three types of agents in the model: households, firms and the government.
Households consist of workers and retirees, and firms are comprised of
intermediate goods producing firms, final goods producing firms and capital
producers. Both a fiscal authority and a central bank are in the government.
There does not exist aggregate uncertainty and hence agents have perfect
foresight. Nevertheless, they can be surprised by one-time unexpected shocks.
1. Life-cycle Structure and Households
In period  there are   workers and   retirees, and       

new workers are born.14) In each period the probability that a worker remains
in the labor force is  , which implies that the average period in the labor force

for a typical worker is  , and the labor force grows at the rate of  .

Accordingly, the labor force evolves according to
                      . (3)
The surviving probability for a typical retiree is  in each period. As a result,


the average retirement time is  , and the law of motion for the number

of retirees is
             . (4)
Since it is assumed that  ,  and  are constant (i.e., the population is
14) In this paper, the superscripts  and  denote workers and retirees, respectively.

stationary), the dependency ratio =   /   is constant as well. It can be

obtained by equations (3) and (4):
          . (5)
In this model, workers and retirees face the uncertainties of retirement

and death, respectively. In order to eliminate the uncertainty of death, a
perfect annuities market is introduced following Yaari (1965) and Blanchard
(1985). The perfect annuities market is operated by a mutual fund that
receives retirees wealth and invests the proceeds. The fund pays each
surviving retiree a return that is proportionate to their contribution, while
retirees who die receive nothing.
To address the uncertainty of retirement, risk neutrality in preferences is
assumed, as in Gertler (1999). To be specific, denote   the value of utility
where the superscript  ∈  . The preferences of households are a class
of the recursive nonexpected utility function:
   


    
  
            

, (6)
where  is the consumption,     denotes leisure, and   is the expectations

operator. The subjective discount factors for workers and retirees are different,
since retirees face the death probability. Specifically, they are
       .
Workers and retirees have a different         :
                              .

2. Retirees
By choosing consumption  , capital   , government bonds

  and leisure     , the representative retiree, who was born and
retired in periods  and  , respectively, maximizes the following utility:
    
  

 (7)
   
 

         ,
subject to the following budget constraint:
                

(8)
                               
where  and  denote the real returns on capital and bonds, respectively.
    is the share of intermediate goods producers whose price is     . ∈  
captures the relative productivity of retirees to workers,  is the real wage,
and     is the real dividend.
Since agents have perfect foresight, returns on capital and bonds must
be equalized:
          
      . (9)

For convenience, we define the total assets of retirees and rewrite the budget
constraint:
                , (10)

                . (11)
Let  be the marginal propensity to consume for retirees. Then the
representative retiree's consumption can be expressed by15)

  
           ,
 
 (12)
where  is the human wealth for retirees, i.e., the present discount value of
current and future labor income:

            . (13)

 evolves according to the following law of motion:
    
 
          
      
  . (14)
with      .
Finally, from the first-order conditions, we can obtain the relationship between
labor supply and consumption:

     
     . (15)
   
15) Appendix A describes how to solve the retirees' problem.

3. Workers
Similarly to the representative retiree, above, the representative worker

born in period  maximizes the following utility:
      
  
   
     
 (16)
 
           
        

,
subject to
                     , (17)
where                      , and  is the lump-sum taxes
faced by each worker.
Consumption   , human wealth    , the marginal propensity to consume
 and the relationship between the labor supply and consumption are as
follows:16)
                , (18)
  
                
                    , (19)
     Ω   
    
 
               
      
  , (20)

      
        , (21)
 
where the adjustment factor   is defined by
16) Appendix B describes how to solve the workers' problem.


   
 
   . (22)

           

  
These equations are more complex compared to those in the retirees'

problem due to the adjustment factor   . This is because workers consider the
possibility that they may retire in the next period. Specifically, if a worker retires,
they will face different wages that are considered in the term  and a different
marginal propensity to consume that is captured by the term   .
4. Aggregating Household Decisions
Since the marginal propensities to consume, the adjustment factor, the

interest rates and wages are the same for all retirees or all workers, we
can easily aggregate the variables in the household problems. An aggregate

variable    ∈  , can be defined by  
   .
Aggregating the relationships between the labor supply and consumption

for retirees and workers gives us

   
        , (23)
   

   
        . (24)
 
The aggregate consumptions of retirees and workers are
            , (25)
             . (26)
In equation (25), the surviving probability  is absent. This is because only

surviving retirees can receive a return     .

The aggregate human wealths for the two groups evolve according to

           , (27)
   

    
 
    
              . (28)
         Ω  
Let       be the ratio of retirees' assets to total assets. Then we can

express aggregate consumption  as
                                . (29)
Aggregate assets for retirees are the sum of the total savings of just-retirees
and those of just retired workers:
               

(30)
                  ,
Aggregate assets for workers are the total savings of workers that remain
in the labor force:
                 . (31)
By combining equations (25), (26), (30) and (31), we can obtain the law
of motion for  :
                              . (32)

Finally, the aggregate assets can be expressed by the aggregate capital,

the aggregate government bonds, and the real market value of intermediate
goods producing firms.
             . (33)
5. Firms
The economy has three types of firms: final goods, intermediate goods
and capital producers. The representative competitive final goods producer
uses constant elasticity of substitution (CES) technology to combine
intermediate goods and to produce final goods. A continuum of
monopolistically competitive intermediate goods producers produce output
that is sold to the final goods producer. Finally, capital producers produce
new capital by using final goods and used capital.
5.1. Final Goods Producers
Final goods producers produce output   by combining intermediate goods

   ∈  , according to the following CES technology:

  
     



 
. (34)
  
The profit maximization problem of the final goods producers yields the
demand for each intermediate good:
       
     , (35)
  

where     denotes the price of intermediate good i. The corresponding

aggregate price level is

  
       
 

 
. (36)
  
5.2. Intermediate Goods Producers
A typical intermediate goods producer combines labor     and capital

      to produce output.
                     , (37)
with             . Productivity   grows exogenously at the rate of  :
          . (38)
At the end of period    , intermediate goods producers purchase capital

to produce output in period  and sell the non-depreciated capital to capital
producers at the end of period  at price   . Accordingly, their cost
minimization problem is given by
min 
                                     , (39)
subject to equation (37), where  is the depreciation rate. The first-order

conditions are
                  , (40)
                                . (41)

where    is the real marginal cost. Dividing equation (40) by equation (41)
shows that the capital-labor ratio is the same across  ,      for all  .
Using the two equations, we can obtain an expression of    :
 
              

     . (42)
      
Intermediate goods producers face a Rotemberg-type price adjustment

cost in setting their price. They solve the following maximization problem
for the price-setting:
max ∞       
 
                        
  
(43)
 
      

       ,
           
subject to equation (35). The last term is the adjustment cost. Since agents
in this model have perfect foresight, no arbitrage conditions hold. Thus,
intermediate goods producers use the real interest rate to discount future profits,
i.e.,       . In an equilibrium all producers choose the same price, which
means        for all  . Hence, from the first-order condition we can obtain
the Philips curve:
   
                            , (44)
 
with          .
5.3. Capital Producers
Capital producers have the technology to convert final goods to capital. In

each period, they buy  of final goods and       of used capital at price
  . Their problem is thus
max
                , (45)
subject to the law of motion for capital




                    ,
     (46)
where  is the parameter associated with the capital adjustment costs and 
is the parameter that enables the costs to be zero in steady state. The first-order
condition yields

  
           ,
      (47)
6. Fiscal and Monetary Policies
The government levies taxes  and issues government bonds   so as to

finance its spending   . Its budget constraint is thus given by
                , (48)
Following Gertler (1999), we assume that government debt and spending

are fixed ratios to output.
      , (49)
    . (50)

Monetary policy follows a standard Taylor-type rule:
                         ln    ln        . (51)
where  is the nominal interest rate and  is a monetary policy shock. The
Fisher equation relates the nominal and real interest rates, i.e.,        .
7. Equilibrium
An (imperfectly competitive) equilibrium is a sequence of variables

{                                                     
                  } such that
• Taking prices as given, retirees and workers maximize their utilities subject
to their budget constraints.
• Final goods producers maximize profits subject to their production

technology. Intermediate goods producers maximize their profits subject
to their production technology and the demand for their output. Capital
producers maximize their profits subject to the law of motion for capital.
• The government decides taxes and its debt to satisfy its budget constraint,
and the central bank sets the nominal interest rate according to the
monetary policy rule.
• Labor, capital and goods markets are clear. The aggregate resource
constraint is

                . (52)

In this economy all quantity variables grow at the rate of       in

the steady state. Thus, we detrend variables by     or   . The detrended

 
variables are expressed by lower case letters, i.e.,     or     .

   
Specifically, aggregate labor, workers' labor, retirees' labor and real wages are
detrended by   , and the other variables are detrended by     . Appendix
C lists all the detrended equilibrium conditions.
Ⅳ. Model Analysis
In this section, we first provide the model calibration. Then we

log-linearize the model around the steady state to study how the
consumptions of workers and retirees respond to monetary policy shocks.
Finally, we conduct additional experiment by varying retirees' relative labor
productivity.
1. Calibration
Table 3 presents the parameter values. One period in the model

corresponds to one quarter. To calibrate parameters related to demographic
structure, we use data from the 2017 Revision of World Population Prospects
from the United Nations. First of all, individuals are born at age 20 and
become workers right after birth, as is usual in the literature. The average
retirement age is 65, which is frequently used in the literature (e.g., Gertler,
1999; Ferrero, 2010; and Carvalho, Ferrero and Nechio, 2016). Consistent
with this, we set the probability that workers remain in labor force  to be
0.9946. We assume that the growth rate of population  is 0.0016, which
matches the average annual population growth rate in developed economies
of 0.0065 during the period of 1950-2015. We calibrate the surviving probability
 to 0.9748. These parameter values generate 20% of the dependency ratio
, which is the same as the average dependency ratio in developed countries

during the period of 1950-2015.

For the other parameter values, we follow the standard literature. The labor
share  is 0.67. The depreciation rate  is 0.025. The elasticity of intertemporal
substitution  is assumed to be 0.5. The discount factor  is set to be 0.991,
generating 1% of the steady state real interest rate. The parameter associated
with the capital adjustment costs  is 2.5. The autoregressive parameter  ,
the weight on inflation  and the weight on output  in the monetary rule
are 0.8, 1.5 and 0.1, respectively. We simply set the ratios of government debt
and spending to output to be 1% and the productivity growth rate to be zero,
since they are not of our interest. For the weight on consumption in the utility
function  and the relative labor productivity of retirees  , we follow Gertler
Table 3. Parameter Values

Parameter Value Description
 0.9946 Probability that workers remain in labor force
 0.0016 Growth rate of population
 0.9748 Surviving probability
 0.2 Dependency ratio
 0.67 Labor share
 0.025 Depreciation rate
 0.5 Elasticity of intertemporal substitution
 0.991 Discount factor
 2.5 Parameter associated with capital adjustment costs
 0.8 Autoregressive parameter in the monetary rule
 1.5 Weight on inflation in the monetary rule
 0.1 Weight on output in the monetary rule
 0.01 Ratio of government debt to output
 0.01 Ratio of government spending to output
 0 Productivity growth rate
 0.4 Weight on consumption in the utility function
 0.6 Relative labor productivity of retirees
 60 Parameter for the price adjustment costs
 12 Elasticity of substitution among intermediate goods

(1999), as well:  is 0.4 and  is 0.6. For the values of the parameter related
to the price adjustment costs  , we use the same values as in Fujiwara and
Teranish (2008), i.e.,  is 60. Finally, we set the elasticity of substitution among
intermediate goods  equal to 12.
2. Effects of Monetary Policy on Consumptions of Workers and Retirees
In this section, we investigate whether a contractionary (a positive 25

basis point deviation) monetary policy shock leads to different consumption
responses from workers and retirees in the model. Figure 1 shows the
responses of variables in the model to the shock.
In response to a contractionary monetary policy shock, the nominal
interest rate increases and inflation falls, which leads to a rise in the real
interest rate. In turn, output, investment, consumption, labor supply and real
wages decrease, as usual. The consumption responses from workers and
retirees, however, are quite different. That is, the consumption of retirees
falls by less than that of workers, which is consistent with our empirical
evidence. This is because real wages go down, but real interest rates increase
in response to the shock. Specifically, the weight of asset income (i.e., asset
holdings multiplied by the real interest rate) in retirees' total income (i.e.,
asset income plus labor income) is larger than that in workers’. In other
words, retirees depend more on interest income than workers' total income.
Moreover, interest and labor incomes are increasing functions of the real
interest rate and real wages, respectively. Hence, retirees' total income goes
down by less than workers' total income, thanks to the rise in real interest
rates. As a consequence, the fall in consumption of retirees is smaller than
that of workers in response to a shock.
In a nutshell, since retirees rely more on asset income than workers, a
contractionary monetary policy shock, causing a rise in the real interest rate
and a fall in real wages, brings about a smaller decrease in retirees' total income
than that in workers' total income. Consumption by retirees hence falls by less
than that of workers in response to the shock.

Figure 1. Model Responses to a Contractionary Monetary Policy Shock (Baseline)
Notes: The responses of real interest rates are deviations from their steady state values, rather than log
deviations. The units on the x-axes are quarters. The units on the y-axes of figures for real
interest rates are percent points and the others are percents.
3. Further Experiments
In this section, we introduce a higher value of the relative labor

productivity of retirees (  ) into the model described in Section Ⅲ. If retirees
are more productive (i.e., the relative labor productivity of retirees  is high),
they work more and thus the weight of labor income in their total income rises
in the model. Hence, by simulating models with both a high  and a low
 (i.e., our baseline model), we can analyze whether the responses of
consumptions of workers and retirees to a monetary policy shock in countries
where the weight of labor income in retirees' total income is high are more
similar than those in countries where the weight of labor income in retirees'
total income is low.
In Figure 2 we finally present the responses of variables in the model with

a high relative labor productivity of retirees  and our baseline model to a

contractionary monetary policy shock. To be specific, we consider  =0.8 as
a high  . The shock leads to very similar responses of workers in both models.
However, in response to the shock, retirees' consumption in the model with
a high  decreases by more than that in the model with a low  . The reason
for this is quite straightforward. When  is high, retirees' real wage (   )
is higher and thus they supply more labor than the case with a low  . This
means that the weight of labor income in their total income is higher as well.
The positive effect of a rise in the real interest rate following the shock on
their total income becomes smaller, while the negative impact of a fall in real
wages on total income becomes larger. Hence, when  is high, in response
to the shock, their total income falls by more, which leads to a larger fall in
their consumption.
Figure 2. Model Responses to a Contractionary Monetary Policy Shock

(Model with Higher Retiree Productivity)
Notes: The responses of real interest rates are deviations from their steady state values, rather than log
deviations. The units on the x-axes are quarters. The units on the y-axes of figures for real
interest rates are percent points and the others are percents.

To sum up, when  is high the weight of labor income in the total income
for retirees is high. A rise in the real interest rate following a contractionary
monetary policy shock offsets the negative impact of a decrease in real wages
(due to the shock) on retirees' total income by less than in the case of a low
 . Retirees' consumption thus falls by more. This implies that the difference
between the consumption responses from workers and retirees in countries
where retirees have more labor income would be smaller than that in countries
where retirees have less labor income.
Ⅴ. Conclusion
In this article, by using empirical and theoretical analyses, we show that

the consumption responses of workers and retirees to monetary policy shocks
are heterogeneous, and one of the sources of that heterogeneity is the
different weight of interest income in their total incomes, caused by different
interest-sensitive financial asset holdings between the two groups.
Specifically, in an empirical analysis, we first show that the consumption
of retirees is less sensitive to monetary policy shocks than that of workers.
Then, we also show that this is because of the differences in interest-
sensitive financial asset holdings between retirees and workers. Using
household-level data from the U.S., Japan, Italy and Korea, we find that the
consumption of retirees in the U.S. and Japan, where the difference in
interest-sensitive financial asset holdings between the two groups of people
is huge, are a lot less sensitive to monetary policy shocks than those in Italy
and Korea. To formalize these empirical results, we extend a life-cycle
model a la Gertler (1999). In accordance with the empirical results, in our
model, worker consumption falls by more than that of retirees in response
to monetary policy shocks. This is because the weight of interest income
for workers in their total income is lower than that of retirees.
Based on our analysis, we can draw several policy implications. First,
considering that, according to our analysis, the effects of monetary policy

on aggregate consumption will be different depending partly on the ratio of

retirees to workers in the economy, monetary policy authorities need to take
this into account when conducting monetary policy. Second, monetary
authorities need to recognize that institutional arrangements, such as
retirement age adjustment and the re-employment of retirees, in response
to the aging era can influence the effectiveness of monetary policy. These
institutional arrangements can affect retirees’ labor income and productivity,
and according to our analysis, this affects the monetary policy pass-through.
Finally, we should mention the limitations of our study. Our interest is
only in the differences in interest-sensitive financial asset holdings between
workers and retirees. However, there may be other channels through which
the consumption responses of workers and retirees to monetary policy shocks
are heterogeneous. For instance, the heterogeneous effects of monetary
policy on workers' and retirees' consumption might also be affected by
differences between non-financial asset holdings, such as real estate and
housing, between the two groups. Moreover, the difference between the debts
of workers and of retirees could be a source of the heterogeneity, too.
Studying such factors together in an empirical and theoretical model remains
an interesting and challenging topic for future study.

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Appendix
A. Retirees’ problem
The first-order conditions are

     
     , (A.1)
   
          
                . (A.2)
   
By the envelope condition, we can obtain the last term in equation (A.2):
           
 
            . (A.3)
     
Combining equations (A.2) and (A.3) gives
         
                      . (A.4)
Substituting equation (A.1) into equation (A.4) yields the consumption

Euler equation:
    
       

      . (A.5)
Next, conjecture that retirees consume a fraction of their total wealth:

  
           .
  (A.6)

Substituting equation (A.6) into equation (A.5) gives
   
 
 
               
      ×
(A.7)
   
         .
 
Using equation (A.6), the budget constraint can be written by
       
                        . (A.8)
    
Substituting equation (A.8) into equation (A.7) yields
   
 
           
      
  . (A.9)
B. Workers’ problem
The first-order conditions are

      
        , (B.1)
 
     
                

(B.2)
 
                
       

           .

      
 
The envelope conditions give

       
 
                   , (B.3)
     
             

      . (B.4)
                     
Substituting the envelope conditions into equation (B.2) yields
    
                 

                ×
    
(B.5)
                          ×
   
      .
We need to conjecture the value functions so as to solve the workers'

problem:

 

 


        , (B.6)
 

 

 


      . (B.7)

Combining equations (B.1), (B.5), (B.6) and (B.7), and using equation
(20) give the consumption Euler equation
                    

    
       (B.8)
  

  
    
   ,
    
where     . The guess for workers’ consumption and the consumption
of a retiree born at  who just retired are

                , (B.9)
               . (B.10)
Substituting these two equations into the consumption Euler equation

yields
 

                              
          (B.11)
 
               .
 

      
         
From equation (B.9) and the budget constraint, we can obtain
              


          
        (B.12)
    
         

 .
     
       
Combining equations (B.11) and (B.12) gives
   

         
  




  . (B.13)
C. List of detrended equilibrium conditions
• Marginal propensity to consume of retirees:
    

            
            
  . (C.1)

• Marginal propensity to consume of workers:
    

         
  
 

     . (C.2)
• Retirees' labor supply:

   
      . (C.3)
   
• Workers' labor supply:

   
      . (C.4)
 
• Ratio of marginal propensities to consume:
    . (C.5)
• Adjustment factor:
       
            . (C.6)
• Aggregate consumption:
                    . (C.7)

• Retirees' consumption:
            . (C.8)
• Workers' consumption:
           . (C.9)
• Human wealth for retirees:
   
          . (C.10)

• Human wealth for workers:
  
                 
                 . (C.11)
      Ω   
• Distribution of wealth:
                            . (C.12)
• No arbitrage condition:
          
            . (C.13)

• Real wage:
     . (C.14)

• Rental rate:
                    . (C.15)
• Marginal cost:
 
               
   . (C.16)
      
• Aggregate labor:
     . (C.17)
• Aggregate assets:
         . (C.18)
• Retirees' assets:
    . (C.19)
• Workers' assets:
      . (C.20)
• Law of motion for capital:
             




                .
     (C.21)

• Price of capital:

   
                  .
   
(C.22)
• Profits of intermediate goods produces:

              . (C.23)

• Phillips curve:
   
                                 
  (C.24)
.
• Government budget constraint:
                  . (C.25)
• Fiscal rule:
        . (C.26)
• Government spending:
     . (C.27)
• Monetary policy:

           
(C.28)
            ln    ln         .
• Fisher equation:
       . (C.29)
• Resource constraint:

                . (C.30)


<Abstract in Korean>
통화정책이 근로자와 은퇴자의 소비에 미치는 영향
김명현*, 송상윤**
본 논문에서는 4 개국(미국, 이탈리아, 일본, 한국) 가구 단위 패널자료 및

생애주기모형(life-cycle model)을 이용하여 근로자와 은퇴자의 소비가 통화
정책 충격에 다르게 반응하는지를 실증적·이론적으로 분석하였다. 실증분
석 및 모형 시뮬레이션 결과, 은퇴자의 소비가 근로자의 소비에 비해 통화
정책 충격에 덜 민감하게 반응하는 것으로 나타났다. 이는 은퇴자의 경우
상대적으로 총소득 중 근로소득의 비중이 낮고 이자소득의 비중이 높으며,
이에 따라 양(+)의 통화정책 충격 시 은퇴자의 총소득이 근로자의 총소득
보다 덜 감소하기 때문인 것으로 파악되었다. 이러한 결과는 고령화가 통
화정책이 소비에 미치는 파급효과를 약화시킬 수 있음을 시사한다.
핵심 주제어: 통화정책, 소비, 고령화, 생애주기모형
JEL Classification: E21, E52, J11, D12
* 성균관대학교 경제대학 조교수 (전화: 02-760-0612, E-mail: mhkim7812@skku.edu)

** 한국은행 경제연구원 미시제도연구실 부연구위원 (전화: 02-759-5478, E-mail: sy.song@bok.or.kr)
논고 작성에 많은 도움을 주신 박성호 미시제도연구실장, 류현주 전 미시제도연구실장, 금융통화연구

실 이대엽 부연구위원, 조사국 이영재 과장 및 세미나 참석자분들께 감사의 말씀을 전합니다.
이 연구내용은 집필자의 개인의견이며 한국은행의 공식견해와 무관합니다. 따라서 본 논문의 내용을
보도하거나 인용할 경우에는 집필자명을 반드시 명시하여 주시기 바랍니다.

BOK 경제연구 발간목록
한국은행 경제연구원에서는 Working Paper인 『BOK 경제연구』를 수시로 발간하고 있습니다.
BOK 경제연구』는 주요 경제 현상 및 정책 효과에 대한 직관적 설명 뿐 아니라 깊이 있는
이론 또는 실증 분석을 제공함으로써 엄밀한 논증에 초점을 두는 학술논문 형태의 연구이며
한국은행 직원 및 한국은행 연구용역사업의 연구 결과물이 수록되고 있습니다.
BOK 경제연구』는 한국은행 경제연구원 홈페이지(http://imer.bok.or.kr)에서 다운로드하여
보실 수 있습니다.
제2019 -1 Deciphering Monetary Policy Board Ki Young Park⋅

Minutes through Text Mining Approach: Youngjoon Lee⋅
The Case of Korea Soohyon Kim
2 The Impacts of Macroeconomic News Jieun Lee⋅
Announcements on Intraday Implied Doojin Ryu
Volatility
3 Taking a Bigger Slice of the Global Chong-Sup Kim⋅
Value Chain Pie: An Industry-level Seungho Lee⋅
Analysis Jihyun Eum
4 Trend Growth Shocks and Asset Prices Nam Gang Lee
5 Uncertainty, Attention Allocation and Kwangyong Park

Monetary Policy Asymmetry
6 Central Bank Digital Currency and Young Sik Kim⋅

Financial Stability Ohik Kwon
7 은행의 수익 및 자산구조를 반영한 통화정책 김의진⋅정호성

위험선호경로
8 혁신기업에 대한 산업금융 지원: 이론모형 강경훈⋅양준구

분석
9 가계부채 제약하의 통화정책: 2주체 거시모 정용승⋅송승주

형(TANK)에서의 정량적 분석
10 Alchemy of Financial Innovation: Jungu Yang
Securitization, Liquidity and Optimal
Monetary Policy
11 Measuring Monetary Policy Surprises Youngjoon Lee⋅
Using Text Mining: The Case of Korea Soohyon Kim⋅
Ki Young Park
12 Tracking Uncertainty through the Seohyun Lee⋅
Relative Sentiment Shift Series Rickard Nyman
13 Intra-firm and Arm’s Length Trade Moon Jung Choi⋅

during the Global Financial Crisis: Ji Hyun Eum
Evidence from Korean Manufacturing
Firms

14 특허자료를 이용한 우리나라 지식전파의 지 이지홍⋅남윤미
역화 분석
15 Overhead Labour and Skill-Biased Choong Hyun Nam

Technological Change: The Role of
Product Diversification
16 Does the Number of Countries in an Myunghyun Kim

International Business Cycle Model
Matter?
17 High-Frequency Credit Spread Bruno Deschamps⋅

Information and Macroeconomic Christos Ioannidis⋅
Forecast Revision Kook Ka
18 경제 분석을 위한 텍스트 마이닝 김수현⋅이영준⋅신진영⋅

박기영
19 Takeover, Distress, and Equity Euna Cho

Issuance: Evidence from Korea
20 The Cash-Flow Channel of Monetary Sang-yoon Song

Policy: Evidence from Mortgage
Borrowers
21 부의 효과의 분위 추정: 분위 정준 공적분회 김기호

귀를 중심으로
22 Identifying Government Spending Kwangyong Park⋅

Shocks and Multipliers in Korea Eun Kyung Lee
23 Systemic Risk of the Consumer Credit Hyun Hak Kim⋅

Network across Financial Institutions Hosung Jung
24 Impact of Chinese Renminbi on Korean Jihyun Eum

Exports: Does Quality Matter?
25 Uncertainty, Credit and Investment: Youngju Kim⋅

Evidence from Firm-Bank Matched Data Seohyun Lee⋅
Hyunjoon Lim
26 A Structural Change in the Trend and Nam Gang Lee⋅

Cycle in Korea Byoung Hoon Seok

제2020 -1 인구 고령화가 실질 금리에 미치는 영향 권오익⋅김명현
2 달러라이제이션이 확산된 북한경제에서 보 문성민⋅김병기

유외화 감소가 물가·환율에 미치는 영향
3 상태공간 벡터오차수정모형을 이용한 월별 김기호

GDP 추정: 깁스표본추출 접근
4 우리나라 외환시장 오퍼레이션의 행태 및 박준서⋅최경욱

환율변동성 완화 효과
5 Common Factor Augmented Forecasting Hyeongwoo Kim⋅

Models for the US Dollar-Korean Won Soohyon Kim
Exchange Rate
6 북한 「경제연구」로 분석한 경제정책 변화: 김수현⋅손 욱

텍스트 마이닝 접근법
7 북한의 광물 수출과 품목별 수입: 대중무역 김병연⋅김민정⋅김다울

을 중심으로
8 Network-Based Measures of Systemic Jaewon Choi⋅

Risk in Korea Jieun Lee
9 Aggregate Productivity Growth and Firm Kyoo il Kim⋅

Dynamics in Korean Manufacturing Jin Ho Park
2007-2017
10 2001년 이후 한국의 노동생산성 성장과 유혜미

인적자본: 교육의 질적 개선 효과를 중심으
로
11 House Prices and Household Seungyoon Lee

Consumption in Korea
12 글로벌 가치사슬 변화가 경제성장에 미치는 김세완⋅최문정

영향: 2008년 금융위기 전후 전·후방참여
효과의 국제비교를 중심으로
13 산업구조조정이 고용 및 성장에 미치는 영향 서병선⋅김태경
v Cross-border Trade Credit and Trade Moon Jung Choi⋅

Flows During the Global Financial Crisis Sangyeon Hwang⋅
Hyejoon Im

15 International Co-movements and Hasan Isomitdinov⋅
Determinants of Public Debt Vladimir Arčabić⋅
Junsoo Lee⋅
Youngjin Yun
16 북한 비공식금융 실태조사 및 분석·평가 이주영⋅문성민
17 북한의 장기 경제성장률 추정: 1956~1989년 조태형⋅김민정
18 Macroeconomic and Financial Market Soohyon Kim

Analyses and Predictions through Deep
Learning
19 제조업의 수출과 생산성 간 관계 분석: 사업 이윤수⋅김원혁⋅박진호

체 자료 이용
20 우리나라 제조업 수출기업의 내수전환 남윤미⋅최문정

결정요인 분석
21 A Model of Satisficing Behaviour Rajiv Sarin⋅

Hyun Chang Yi
22 Vulnerable Growth: A Revisit Nam Gang Lee
23 Credit Market Frictions and Ohik Kwon⋅

Coessentiality of Money and Credit Manjong Lee
24 북한의 자본스톡 추정 및 시사점 표학길⋅조태형⋅김민정
25 The Economic Costs of Diplomatic Hyejin Kim⋅

Conflict Jungmin Lee
26 Central Bank Digital Currency, Tax Ohik Kwon⋅

Evasion, Inflation Tax, and Central Bank Seungduck Lee⋅
Independence Jaevin Park
27 Consumption Dynamics and a Home Dongjae Jung

Purchase
28 자본유입과 물가상승률 간의 동태적 상관관 최영준⋅손종칠

계 분석: 아시아의 8개국 소규모 개방경제를
중심으로

29 The Excess Sensitivity of Long-term Kwangyong Park
Interest rates and Central Bank
Credibility
30 Wage and Employment Effects of Hyejin Kim

Immigration: Evidence from Korea
제2021 -1 외국인력 생산성 제고 방안―직업훈련 프로 김혜진⋅이철희

그램의 노동시장 성과 분석을 중심으로
2 한국경제의 추세 성장률 하락과 원인 석병훈, 이남강
3 Financial Globalization: Effects on Christopher Paik

Banks’ Information Acquisition and
Credit Risk
4 The Effects of Monetary Policy on Myunghyun Kim⋅

Consumption: Workers vs. Retirees Sang-yoon Song

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The Effects of Monetary Policy on

Consumption: Workers vs. Retirees

Myunghyun Kim*, Sang-yoon Song**

* Assistant Professor, Department of Economics, Sungkyunkwan University, Tel: +82-2-760-0612, E-mail:

Electronic copy available at: https://ssrn.com/abstract=3779062

II. Empirical Evidence ·

III. Description of Life-cycle Model ·

IV. Model Analysis ·

Electronic copy available at: https://ssrn.com/abstract=3779062

This paper explores the heterogeneous effects of monetary policy on

Keywords: Monetary Policy, Consumption, Population Aging, Life-cycle Model

JEL Classification: E21, E52, J11, D12

Electronic copy available at: https://ssrn.com/abstract=3779062

A crucial pipeline of monetary policy transmission to the real economy

Electronic copy available at: https://ssrn.com/abstract=3779062

recognized that population aging can affect the transmission of monetary

Electronic copy available at: https://ssrn.com/abstract=3779062

Electronic copy available at: https://ssrn.com/abstract=3779062

more attention to the different financial debts across age groups. By

1. Identification of Monetary Policy Shock Series

To investigate the heterogeneous effects of monetary policy shocks on

Electronic copy available at: https://ssrn.com/abstract=3779062

to a lack of data. In contrast, the methodology of Coibion (2012) can be

Electronic copy available at: https://ssrn.com/abstract=3779062

monetary policy shocks as in Uhlig (2005).

2. Data and Methodology

Data We make use of household-level survey datasets from four

Electronic copy available at: https://ssrn.com/abstract=3779062

log                ×                   (1)

where  is non-durable consumption of household  of country  in year

Electronic copy available at: https://ssrn.com/abstract=3779062

this suggests that the consumption of retirees responds less sensitively to

log                 ×      

where  is financial asset holdings of household  of country  in year

Electronic copy available at: https://ssrn.com/abstract=3779062

sources for the heterogeneous responses between the consumptions of

Table 1. The Effects of Monetary Policy Shocks on Consumption: Evidence

Electronic copy available at: https://ssrn.com/abstract=3779062

3.2 Source of the Heterogeneous Responses: Evidence from Four

Using monetary policy shock series identified by the methodology of Coibion

Electronic copy available at: https://ssrn.com/abstract=3779062

Table 2. The Heterogeneous Effects of Monetary Policy Shocks on

Constant -7.314*** -7.31*** -5.568*** -5.562*** -17.439*** -17.437***

asset holdings of households, there is no change in the estimated coefficient

Electronic copy available at: https://ssrn.com/abstract=3779062

Electronic copy available at: https://ssrn.com/abstract=3779062

Ⅲ. Description of Life-cycle Model

1. Life-cycle Structure and Households

In period  there are   workers and   retirees, and       

                      . (3)

The surviving probability for a typical retiree is  in each period. As a result,

             . (4)

Since it is assumed that  ,  and  are constant (i.e., the population is

Electronic copy available at: https://ssrn.com/abstract=3779062

stationary), the dependency ratio =   /   is constant as well. It can be

In this model, workers and retirees face the uncertainties of retirement

where  is the consumption,     denotes leisure, and   is the expectations

Workers and retirees have a different         :

                              .

Electronic copy available at: https://ssrn.com/abstract=3779062

By choosing consumption  , capital   , government bonds

subject to the following budget constraint:

Constant -7.314* -7.31* -5.568* -5.562* -17.439* -17.437*