 Monetary policy and the functional income distribution: Two million firms’ production dynamicsLea Steininger and Jan P. Fritsche European Economic Review, 2025, vol. 178, issue C Abstract: We study the role of firm heterogeneity and cost structure in determining the distributional impact of euro area monetary policy at the firm level. Using local projections and high dimensional fixed effects, we first show that a one standard deviation contractionary monetary policy shock decreases firms’ labor share by 0.4 percentage points, on average. Next, we employ firms’ ideosyncratic leverage ratio as an exposure measure to mediate the euro-area-wide shocks to the firm level, and show that responses vary along two key dimensions: the labor share is most informative in distinguishing firms based on their response in payroll expenses, while firms’ leverage is most indicative in differentiating their response in value added. Our results inform the policy debate on transmission and redistribution effects of monetary policy, and suggest that the effectiveness of monetary policy may depend on the functional income distribution. Keywords: Monetary policy; Firm heterogeneity; Labor share; Production dynamics; Factor input costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:178:y:2025:i:c:s0014292125001321 DOI: 10.1016/j.euroecorev.2025.105082 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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