Elisa Rubbo, Booth School of Business, University of Chicago

"Monetary non-neutrality in the cross-section"


This paper derives the cross sectional effects of monetary policy on employment and consumption in a model economy where heterogeneous agents earn and spend their income in different industries. Agents are characterized by their labor type, consumption preferences, wage rigidity and labor supply elasticity. Industries hire different bundles of labor types and capital assets, and face heterogeneous price rigidity and demand elasticity. In response to a monetary expansion, goods that have stickier prices or use supply-elastic factors (or whose inputs have sticky prices or use supply-elastic factors...) become cheaper, thereby raising the relative demand and employment of the workers who produce them. In the aggregate, the ability of producers and consumers to substitute towards sticky-price or supply-elastic goods increases monetary non-neutrality. Calibrating the model to the US economy, and interpreting labor types as different occupations, reveals significant heterogeneity in the impact response of employment to monetary policy, which varies from 0.25 (food services) to 1.1 (construction) for a 1increase in nominal GDP. Ignoring input-output linkages would reduce the cross-sectional range from 0.86 to 0.35.

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