Heterogeneous Labor Market Effects of Monetary Policy

47 Pages Posted: 4 Jan 2021 Last revised: 5 Jan 2021

See all articles by Nittai Bergman

Nittai Bergman

Tel Aviv University - Berglas School of Economics

David A. Matsa

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Date Written: December 6, 2020

Abstract

This paper analyzes the heterogeneous effects of monetary policy on workers with different levels of labor force attachment. Exploiting variation in labor market tightness across metropolitan areas, we show that the employment of populations with lower labor force attachment--Blacks, high school dropouts, and women--is more responsive to expansionary monetary policy in tighter labor markets. We develop a New Keynesian model with heterogeneous workers that explains these results. The model shows that expansionary monetary shocks lead to larger and more persistent increases in the employment of low attachment populations when the central bank follows an average inflation targeting rule and when the Phillips curve is flatter. These findings suggest that the Federal Reserve's recent move from a strict to an average inflation targeting framework will especially benefit workers with lower labor force attachment.

Keywords: Monetary Policy, Labor Markets, Heterogeneous Agents, Federal Reserve

JEL Classification: E12, E24, E31, E43, E52, E58, J24

Suggested Citation

Bergman, Nittai and Matsa, David A. and Weber, Michael, Heterogeneous Labor Market Effects of Monetary Policy (December 6, 2020). Chicago Booth Research Paper No. 21-02, Available at SSRN: https://ssrn.com/abstract=3757645 or http://dx.doi.org/10.2139/ssrn.3757645

Nittai Bergman (Contact Author)

Tel Aviv University - Berglas School of Economics ( email )

David A. Matsa

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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Michael Weber

University of Chicago - Finance ( email )

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National Bureau of Economic Research (NBER)

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