Inequality, Home Production, and Monetary Policy

Vanessa B. Schmidt

No 82, Berlin School of Economics Discussion Papers from Berlin School of Economics

Abstract: I study the role of home production in determining the labor income channel through which monetary policy affects consumption inequality. To this end, I develop a Two-Agent New Keynesian model with home production. In the context of my model, hand-to-mouth households experience a sharper decline in labor income compared to richer households in response to a contractionary monetary policy shock. However, they increase home production to a greater extent than richer households do. The resulting labor income channel is therefore one third the size when accounting for home production. In line with my theoretical results, I show empirically that individuals living hand-to-mouth respond to contractionary monetary policy shocks by increasing home production by more than richer people do.

Keywords: constrained households; consumption inequality; home production; monetary policy; TANK models (search for similar items in EconPapers)
JEL-codes: E21 E52 J22 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2025-11-13
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Persistent link: https://EconPapers.repec.org/RePEc:bdp:dpaper:0082

DOI: 10.48462/opus4-5993

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