The impact of monetary policy on a labor market with heterogeneous workers: The case of Chile

Carlos Madeira and Leonardo Salazar

Latin American Journal of Central Banking (previously Monetaria), 2023, vol. 4, issue 2

Abstract: We use a factor-augmented vector autoregressive (FAVAR) model to analyze the effect of a contractionary monetary policy shock on macroeconomic aggregates and labor market indicators for different demographic groups in Chile classified by industry, age, and income quintile. Inflation is negatively correlated with unemployment across groups. The model shows that most groups’ job-separation rate and wage volatility increase after an interest rate rise. The response of the job-finding rate is mixed, decreasing in some groups and rising in others after an interest rate shock. The labor market in the primary sector is the least sensitive to monetary shocks.

Keywords: Idiosyncratic income risk; Unemployment; Heterogeneity; Business cycle fluctuations; Labor flows (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Impact of Monetary Policy on a Labor Market with Heterogeneous Workers: The Case of Chile (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:4:y:2023:i:2:s2666143823000133

DOI: 10.1016/j.latcb.2023.100092

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