Labor-Intensive Firms Are a Catalyst for Monetary Policy and Its Distributive Effects

Jan Philipp Fritsche

DIW Weekly Report, 2021, vol. 11, issue 35/36, 261-266

Abstract: The mandate of the European Central Bank’s monetary policy is to ensure price stability. Interest rate changes by the ECB affect labor costs and the value added of firms. If both dimensions are not equally affected, monetary policy has a distributive effect between workers and shareholders. Balance sheet data from over two million companies in the euro area show that the labor costs in labor-intensive companies decrease more strongly than in other firms in response to interest rate increases. Heterogeneity of the companies can lead to asymmetries in the transmission of monetary policy in the euro area countries. Therefore, new monetary policy instruments targeting firms should be discussed. European labor markets with uniform labor law and European labor market institutions, along with the long-discussed banking and capital markets union, could help monetary policy affect the whole euro area more evenly.

Keywords: Monetary policy; firm heterogeneity; labor share; financial frictions; DSGE model validation (search for similar items in EconPapers)
JEL-codes: C52 D22 D31 E23 E32 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.824734.de/dwr-21-35-1.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwdwr:dwr11-35-1

Access Statistics for this article

DIW Weekly Report is currently edited by Tomaso Duso, Marcel Fratzscher, Peter Haan, Claudia Kemfert, Alexander Kritikos, Alexander Kriwoluzky, Stefan Liebig, Lukas Menkhoff, Karsten Neuhoff, Carsten Schröder, Katharina Wrohlich and Sabine Fiedler

More articles in DIW Weekly Report from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().