Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity
| Autor: | Juan J. Dolado, Evi Pappa, Gergo Motyovszki |
|---|---|
| Přispěvatelé: | Ministerio de Economía y Competitividad (España) |
| Rok vydání: | 2021 |
| Předmět: |
Inflation
Search and matching media_common.quotation_subject Labor demand Wage Monetary economics Economía Monetary policy Quantitative easing Business cycle Dynamic stochastic general equilibrium New Keynesian economics Economics E12 E52 Aggregate demand E32 media_common Inflation targeting Capital-skill complementarity Investment (macroeconomics) Inequality Capital (economics) Unemployment E24 J63 E25 General Economics Econometrics and Finance |
| Zdroj: | e-Archivo. Repositorio Institucional de la Universidad Carlos III de Madrid instname |
| ISSN: | 1945-7715 1945-7707 |
| DOI: | 10.1257/mac.20180242 |
| Popis: | Contrary to previous beliefs, recent empirical work has found that the effects of monetary policy on inequality are far from modest. In order to improve our understanding of the channels through which monetary policy has distributional consequences, we build a New Keynesian model with incomplete asset markets, asymmetric search and matching (SAM) frictions across skilled and unskilled workers and, foremost, capital-skill complementarity (CSC) in the production function. Our main finding is that an unexpected monetary easing increases labor income inequality between high and low-skilled workers, and that the interaction between CSC and SAM asymmetry is crucial in delivering this result. This is so since the increase in labor demand driven by a monetary expansion leads to larger wage increases for high-skilled workers than for low-skilled workers since the former have smaller matching frictions (SAM-asymmetry channel). Moreover, the increase in capital demand amplifies this wage divergence due to skilled workers being more complementary to capital than substitutable unskilled workers are (CSC channel). Strict inflation targeting is often the most successful rule in stabilizing measures of earnings inequality even in the presence of shocks which introduce a trade-off between stabilizing inflation and aggregate demand. |
| Databáze: | OpenAIRE |
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