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The impact of monetary policy on a labor market with heterogeneous workers: The case of Chile

Year: 2023

Type: article

Abstract: We use a factor-augmented vector autoregressive (FAVAR) model to analyze the effect of a contractionary monetary policy shock on macroeconomic aggregates and labor market indicators for different demographic groups in Chile classified by industry, age, and income quintile. Inflation is negatively correlated with unemployment across groups. The model shows that most groups’ job-separation rate and wage volatility increase after an interest rate rise. The response of the job-finding rate is mixed, decreasing in some groups and rising in others after an interest rate shock. The labor market in the primary sector is the least sensitive to monetary shocks.

Source: Latin American Journal of Central Banking

DOI: 10.1016/j.latcb.2023.100092

Authors: Carlos Madeira, Leonardo Salazar

Institutions: Banco Central de Chile, University of Concepción

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, Reduced inequalities

Open Access status: gold

Estimated APC paid: $1,450