Elisa Rubbo, University of Chicago

Monetary Non-Neutrality in the Cross-Section

This paper models the heterogeneous effects of monetary policy on employment and consumption across households who participate in segmented labor markets, earning and spending their income in different industries. Households who are exposed to sticky-price or labor-intensive industries have flatter labor supply curves. Monetary policy – which is an aggregate demand shifter – has a larger effect on the employment of these households. In the aggregate, the ability of producers and consumers to shift expenditure towards these workers increases the real effects of monetary policy. Calibrating the model to the US economy reveals significant heterogeneity in the impact response of employment to monetary policy across occupations, varying from 0.25% % (food services) to 1.1% % (construction) for a 1% increase in nominal GDP. Ignoring input-output linkages would reduce this cross-sectional range from 0.86% to 0.35% .