Date: 2021
Type: Article
Monetary policy and inequality under labor market frictions and capital-skill complementarity
American economic journal : macroeconomics, 2021, Vol. 13, No. 2, pp. 292-332
MOTYOVSZKI, Gergo, DOLADO, Juan J., PAPPA, Evi, Monetary policy and inequality under labor market frictions and capital-skill complementarity, American economic journal : macroeconomics, 2021, Vol. 13, No. 2, pp. 292-332
- https://hdl.handle.net/1814/70799
Retrieved from Cadmus, EUI Research Repository
We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these findings, we build a New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions and capital-skill complementarity (CSC) in production. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel.
Additional information:
First published online: April 2021
Cadmus permanent link: https://hdl.handle.net/1814/70799
Full-text via DOI: 10.1257/mac.20180242
ISSN: 1945-7707; 1945-7715
Publisher: American Economic Association
Earlier different version: https://hdl.handle.net/1814/72599
Version: The article is a revised version of a chapter 1 of the author’s EUI PhD thesis, 2021
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