Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243196 
Year of Publication: 
2021
Series/Report no.: 
DIW Discussion Papers No. 1967
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
Conditional on a contractionary monetary policy shock, the labor share of value added is expected to decrease in the basic New Keynesian model. By providing firm-level evidence, we are first to validate this proposition. Using local projections and high dimensional fixed effects, we show that a one standard deviation contractionary monetary policy shock decreases firms' labor share by 0.4 percent, on average. However, reactions are heterogeneous along two dimensions: The labor share is most informative to discriminate firms by their response in payroll expenses, firms' leverage is most informative to discriminate by their response in value added. We inform the policy debate on transmission and redistribution effects of monetary policy.
Subjects: 
Monetary policy
firm heterogeneity
labor share
financial frictions
DSGE model validation
JEL: 
D22
D31
E23
E32
C52
Document Type: 
Working Paper

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