Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth

Nittai K. Bergman, David Matsa, Michael Weber and Michael Weber
Authors registered in the RePEc Author Service: Michael Weber

No 9512, CESifo Working Paper Series from CESifo

Abstract: This paper analyzes the heterogeneous effects of monetary policy on workers with differing levels of labor force attachment. Exploiting variation in labor market tightness across metropolitan areas, we show that the employment of populations with lower labor force attachment—Blacks, high school dropouts, and women—is more responsive to expansionary monetary policy in tighter labor markets. The effect builds up over time and is long lasting. We develop a New Keynesian model with heterogeneous workers that rationalizes these results. The model shows that expansionary monetary shocks lead to larger increases in the employment of less attached workers when the central bank follows an average inflation targeting rule and when the Phillips curve is flatter. These findings suggest that, by tightening labor markets, the Federal Reserve’s recent move from a strict to an average inflation targeting framework especially benefits workers with lower labor force attachment.

Keywords: monetary policy; labor markets; heterogeneous agents; federal reserve (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 E43 E52 E58 J24 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth (2022)
Working Paper: Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9512

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