Labor market slack, household inequality and monetary policy

Paweł Kopiec ()

No 375, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper examines the non-linear impact of unemployment levels on the effectiveness of monetary policy. Using a standard heterogeneous-agent model with uninsured income risk, integrated with a canonical frictional labor market framework, I compare two versions of the model calibrated to reflect high- and low-unemployment regimes in the Polish economy. The findings reveal that the output response to a policy rate change is 60% larger in the high-unemployment scenario than in the low-unemployment one, while price reactions are more pronounced when unemployment is low. Additionally, I investigate the role of incomplete insurance markets in the transmission of monetary policy and assess the welfare implications of policy changes, both at the aggregate level and across different household subgroups.

Keywords: Monetary Policy; Heterogeneous Agents; Frictional Markets; Unemployment (search for similar items in EconPapers)
JEL-codes: D30 D31 D52 E21 E24 E43 E52 E58 (search for similar items in EconPapers)
Pages: 42
Date: 2025
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
Note: The views presented in this paper are those of the author, and should not be attributed to Narodowy Bank Polski.
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:375

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