Impact of Monetary and Fiscal Policy on Heterogeneous Labor, under Limited Participation
25 Pages Posted: 16 Sep 2016
Date Written: June 26, 2016
This paper introduces skill heterogeneity in a limited participation model. The main finding is that an expansionary monetary policy redistributes risk between financial market participants and non participants, as well as increases the resources allocated for skill formation leading to increased human capital. In the face of a negative technology shock, monetary policy has redistributive effects in favor of traders and may not impact aggregate output and consumption. An expansionary fiscal policy, on the other hand, increases supply of both types of workers, as well as their consumption, thereby, affecting each type of household uniformly; and raises overall output in the economy, thereby, speeding recovery to the long run trend.
Keywords: Monetary Policy, Fiscal Policy, Heterogenous Labor, Limited Participation, Distributional Effects
JEL Classification: E52, E62
Suggested Citation: Suggested Citation