Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/327675 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12065
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
This paper estimates a New Keynesian model with heterogeneous agents to study the interactions among monetary policy, macroeconomic shocks, and the distribution of income between capital and labor. The model assumes two types of households: workers, who supply labor to firms and receive wage income, and capitalists, who own the firms and enjoy the corresponding profits. There are nominal rigidities in both the goods and labor markets. The structural model is estimated using Bayesian methods to match U.S. data on consumption, corporate profits, wages, inflation, and nominal interest rates, on a sample spanning more than six decades. The empirical results show that contractionary monetary policy and inflationary price-markup shocks lead to increases in inequality. Negative wage markup shocks, which proxy for declining workers' bargaining power, are major drivers of peaks in inequality over the sample; together with price markup shocks, they also account for a significant share of the changes in inequality after COVID.
Subjects: 
Heterogeneous-Agent New Keynesian model
income distribution between capital and labor
monetary policy and inequality
inflation and inequality.
JEL: 
E25
E31
E32
E52
E58
Document Type: 
Working Paper
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