The effect of wage rigidity on the transmission of monetary policy to inequality

Momo Komatsu

No 1004, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: What is the effect of wage rigidities on the transmission of monetary policy to inequality? This paper investigates this question with a Two-Agent New Keynesian model with financially constrained and unconstrained households, and with search-and-matching frictions. I study the relative effects of the wage channel and the labour market channel in the transmission of conventional and unconventional monetary policy, and how these change with degrees of wage rigidity. My main result is that the stickier the wage, the more a contractionary monetary policy shock reduces consumption inequality, whether that is conventional monetary policy or quantitative tightening, driven by the wage channel.

Date: 2023-03-31
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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