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Inequality, Home Production, and Monetary Policy

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  • Vanessa B. Schmidt

Abstract

I study the role of home production in determining the labor income channel through which monetary policy affects consumption inequality. To this end, I develop a Two-Agent New Keynesian model with home production. In the context of my model, hand-to-mouth households experience a sharper decline in labor income compared to richer households in response to a contractionary monetary policy shock. However, they increase home production to a greater extent than richer households do. The resulting labor income channel is therefore one third the size when accounting for home production. In line with my theoretical results, I show empirically that individuals living hand-to-mouth respond to contractionary monetary policy shocks by increasing home production by more than richer people do.

Suggested Citation

  • Vanessa B. Schmidt, 2025. "Inequality, Home Production, and Monetary Policy," Berlin School of Economics Discussion Papers 0082, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0082
    DOI: 10.48462/opus4-5993
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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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