Population dynamics and monetary policy

This paper shows that in a general equilibrium model with interest-rate feedback rules of the Taylor-type population dynamics give rise to multiple steady states. Under an active monetary policy, real determinacy occurs only around the steady state with zero net financial wealth, where aggregate consumption is equally distributed among agents of different generations. By contrast, in a neighborhood of the steady state displaying a positive stock of financial wealth and intergenerational inequality, real determinacy requires monetary policy to be passive. Changes in the demographic profile of the economy are shown to have relevant implications for the aggregate accumulation of wealth