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Interest Rate Effects Of Demographic Changes In A New-Keynesian Life-Cycle Framework

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Executive Summary

This paper develops a small-scale DSGE model which embeds a demographic structure within a monetary policy framework. The authors extend the tractable, though non-monetary overlapping-generations model of Gertler (1999) and present a small synthesis model which combines the set-up of Gertler with a New-Keynesian structure, implying that the short-run dynamics related to monetary policy are similar to the paradigm summarized in Woodford (2003). In sum, the model offers a New-Keynesian platform which can be used to investigate in a closed economy set-up the response of macroeconomic variables to demographic shocks, similar to technology, government spending or monetary policy shocks.

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