Giacomo Mangiante, Graduate Student, HEC Lausanne
Abstract: I propose and quantify a novel channel behind the observed change in monetary policy shocks propagation: older individuals purchase more from product categories with higher levels of price rigidity so the aggregate frequency of price adjustment decreases as the population ages. In line with these micro evidences, I show that economic activity in U.S. states as well as Euro Area regions with an higher old-dependency ratio reacts more to monetary shocks. Finally, I rationalise these findings using a two-sectors OLG New Keynesian model where demographic trends shift aggregate demand towards the stickier expenditure category resulting in a stronger response of output to monetary shocks as well as in a decrease in the slope of the Phillips curve.