MONETARY POLICY AND INEQUALITY: HOW DOES ONE AFFECT THE OTHER?

Eunseong Ma

International Economic Review, 2023, vol. 64, issue 2, 691-725

Abstract: This article studies a labor‐supply‐side channel affecting the relationship between monetary policy and income inequality. To this end, I build a heterogeneous‐agent New Keynesian economy with indivisible labor in which both macro and micro labor supply elasticities are endogenously generated. First, I find that monetary policy shocks have distributional consequences due to a substantial heterogeneity in labor supply elasticity across households. Second, a more equal economy is associated with more effective monetary policy in terms of output. I document supporting empirical evidence for the key mechanism of the model using microlevel data and state‐level data in the United States.

Date: 2023
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https://doi.org/10.1111/iere.12610

Related works:
Working Paper: Monetary Policy and Inequality: How Does One Affect the Other? (2022)
Working Paper: Monetary Policy and Inequality: How Does One Affect the Other? (2020)
Working Paper: Monetary Policy and Inequality: How Does One Affect the Other? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:64:y:2023:i:2:p:691-725

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