Monetary Policy and Inequality: How Does One Affect the Other?

Eunseong Ma

No 2022rwp-203, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper studies a labor-supply-side channel affecting the relationship between monetary policy and income inequality. To this end, I build a heterogeneous-agent New Keynesian economy with indivisible labor in which both macro and micro labor supply elasticities are endogenously generated. First, I find that monetary policy shocks have distributional consequences due to a substantial heterogeneity in labor supply elasticity across households. Second, a more equal economy is associated with more effective monetary policy in terms of output. I document supporting empirical evidence for the key mechanism of the model using micro-level data and state-level data in the U.S.

Keywords: Monetary policy; Inequality; Labor supply elasticity; Indivisible labor. (search for similar items in EconPapers)
JEL-codes: D31 D52 E52 J21 (search for similar items in EconPapers)
Pages: 44pages
Date: 2022-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lma and nep-mon
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: MONETARY POLICY AND INEQUALITY: HOW DOES ONE AFFECT THE OTHER? (2023)
Working Paper: Monetary Policy and Inequality: How Does One Affect the Other? (2020)
Working Paper: Monetary Policy and Inequality: How Does One Affect the Other? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:yon:wpaper:2022rwp-203

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