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Modelling monetary policy’s impact on labour markets under Covid-19

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  • Evgenidis, Anastasios
  • Fasianos, Apostolos

Abstract

This paper investigates the effectiveness of monetary policy on macroeconomic and labour market variables in the US, taking into account the impact of the Covid-19 pandemic. Using a medium scale Bayesian VAR that explicitly incorporates the exceptionally large shocks during the pandemic, we find that expansionary monetary policy has more pronounced and durable effects on labour market variables, in comparison to a non-pandemic setup for the same sample. Additionally, our analysis suggests that a non-pandemic setup, would result in rises in income inequality. In contrast, our proposed setup predicts a significant reduction in income inequality due to an increase in the income share of the bottom 50%.

Suggested Citation

  • Evgenidis, Anastasios & Fasianos, Apostolos, 2023. "Modelling monetary policy’s impact on labour markets under Covid-19," Economics Letters, Elsevier, vol. 230(C).
    • Handle: RePEc:eee:ecolet:v:230:y:2023:i:c:s0165176523002665
    DOI: 10.1016/j.econlet.2023.111241
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    More about this item

    Keywords

    Monetary policy; VAR; Extreme events; Covid-19; Inequality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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