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Economics 442Macroeconomic Policy
Lecture 113/5/2018
Instructor: Prof. Menzie ChinnUW MadisonSpring 2018
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Outline
• Eggertson and Mehrotra• Slow Productivity Growth
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Summary
• Young borrow to consume• Middle age save for retirement• Old consume and dis‐save
• Key: Exogenous borrowing constraint on young
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Dt, gt exogenous
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Deleveraging Shock
• A sudden and permanent reduction in D.• The Young generation borrows less than before.
• When they become the Middle aged generation, they have less debt, and have more to save.
• The resulting lower interest rate loosens constraint for young, induces more spending for Middle
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An Aging Society
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An Aging Society
• Aging society is represented by reduction in parameter g
• Recall loan demand equation has g parameter in it
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‘
g’ < g
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Income Inequality
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Income Inequality
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Income Inequality
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g’ < g
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Endogenous Output, Permanent Inflation, ZLB
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AD Shift
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Supply Side Economics?
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Inflation Targeting
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Fiscal Policy
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Capital Goods Price