Working Paper: CEPR ID: DP17589
Authors: Kurt Mitman; Tobias Broer; John Kramer
Abstract: We use high-frequency administrative data from Germany to study the effects of monetary policy on income and employment across the earnings distribution. Earnings growth at the bottom of the distribution is substantially more elastic to policy shocks. This unequal incidence is driven by differences in the response of employment risk across the distribution: job loss is more countercyclical for lower-earnings households. Viewed through the lens of a standard incomplete-markets model, the heterogeneous incidence substantially amplifies the equilibrium response of aggregate consumption to shocks.
Keywords: monetary policy; income inequality; labor income risk
JEL Codes: E32; E52; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy (interest rate changes) (E52) | Earnings growth of low-income workers (J31) |
| Monetary policy (expansion) (E52) | Income inequality (D31) |
| Income inequality (D31) | Employment rates of low-income workers (J68) |
| Heterogeneous unemployment risk (J64) | Aggregate demand (E00) |
| Heterogeneous unemployment risk (J64) | Precautionary savings behavior of low-income individuals (D14) |