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Labor market slack, household inequality, and monetary policy

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  • Kopiec, Paweł

Abstract

This paper examines the non-linear impact of unemployment levels on the effectiveness of monetary policy. Using a standard heterogeneous-agent model with uninsured income risk, integrated with a canonical frictional labor market framework, I compare two versions of the model calibrated to reflect high- and low-unemployment regimes in the Polish economy. The findings reveal that the output response to a policy rate change is 60% larger in the high-unemployment scenario than in the low-unemployment one, while price reactions are more pronounced when unemployment is low. Additionally, I investigate the role of incomplete insurance markets in the transmission of monetary policy and assess the welfare implications of policy changes, both at the aggregate level and across different household subgroups.

Suggested Citation

  • Kopiec, Paweł, 2026. "Labor market slack, household inequality, and monetary policy," Structural Change and Economic Dynamics, Elsevier, vol. 79(C), pages 143-154.
    • Handle: RePEc:eee:streco:v:79:y:2026:i:c:p:143-154
    DOI: 10.1016/j.strueco.2026.05.001
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    Keywords

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    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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