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Monetary Policy and the Racial Unemployment Rates in the US

Hamza Bennani ()

No 2021-8, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper analyses the effects of monetary policy on labor market responses of different racial groups in the US from 1970-2013. Employing a narrative approach to identify monetary policy shocks and local projections, we find that monetary policy has a significant impact on White's unemployment rate. Empirical evidence indicates that an accommodative monetary shock affects positively and significantly White workers, while the effect on African-American workers is more uncertain and not significant for the Hispanic workers. These results are robust when considering unconventional monetary policy measures in the specification and when exploring the impact of monetary policy on different genders and age groups. Finally, we highlight that these results are mainly driven by a \enquote{recession effect}, whereby as a result of occupational, segregation minorities do not benefit from the Federal Reserve's accommodative monetary policy during recessions. Our findings suggest that monetary policy is ineffective in reducing the unemployment gap among minorities in the US, and that the Fed should specifically target the African-American unemployment rate in its reaction function. Finally, structural policies that aim to improve the skills of minorities and the fight against racial discrimination in the labor market, in particular during recessions, are also likely to mitigate the racial unemployment gap.

Keywords: minorities; monetary policy; employment. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ure
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