Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252029 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9512
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyzes the heterogeneous effects of monetary policy on workers with differing 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. The effect builds up over time and is long lasting. We develop a New Keynesian model with heterogeneous workers that rationalizes these results. The model shows that expansionary monetary shocks lead to larger increases in the employment of less attached workers when the central bank follows an average inflation targeting rule and when the Phillips curve is flatter. These findings suggest that, by tightening labor markets, the Federal Reserve's recent move from a strict to an average inflation targeting framework especially benefits workers with lower labor force attachment.
Subjects: 
monetary policy
labor markets
heterogeneous agents
federal reserve
JEL: 
E12
E24
E31
E43
E52
E58
J24
Document Type: 
Working Paper
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