Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity
American Economic Journal: Macroeconomics
vol. 13,
no. 2, April 2021
(pp. 292-332)
Abstract
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.Citation
Dolado, Juan J., Gergő Motyovszki, and Evi Pappa. 2021. "Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity." American Economic Journal: Macroeconomics, 13 (2): 292-332. DOI: 10.1257/mac.20180242Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E25 Aggregate Factor Income Distribution
- E32 Business Fluctuations; Cycles
- E52 Monetary Policy
- J63 Labor Turnover; Vacancies; Layoffs
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