The Curious Incidence of Monetary Policy Across the Income Distribution

Kurt Mitman, Tobias Broer and John Kramer

No 17589, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use high-frequency administrative data from Germany to study the effects of monetary policy on income and employment across the earnings distribution. Earnings growth at the bottom of the distribution is substantially more elastic to policy shocks. This unequal incidence is driven by differences in the response of employment risk across the distribution: job loss is more countercyclical for lower-earnings households. Viewed through the lens of a standard incomplete-markets model, the heterogeneous incidence substantially amplifies the equilibrium response of aggregate consumption to shocks.

Keywords: Monetary policy; Income inequality; Labor income risk (search for similar items in EconPapers)
JEL-codes: E32 E52 J31 (search for similar items in EconPapers)
Date: 2022-10
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