Monetary policy and inequality under labor market frictions and capital-skill complementarity Articles uri icon

publication date

  • April 2021

start page

  • 292

end page

  • 332


  • 2


  • 13

International Standard Serial Number (ISSN)

  • 1945-7707

Electronic International Standard Serial Number (EISSN)

  • 1945-7715


  • We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these f indings, we build a New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions and capital-skill complementarity (CSC) in production. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel.


  • Economics


  • monetary policy; search and matching; capital-skill complementarity; inequality