Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity

We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. show that an unexpected easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these findings, we build New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions capital-skill complementarity (CSC) in production. CSC on its own introduces dynamic demand amplification mechanism: the increase employment after expansion makes complementary capital more productive, encouraging further rise investment creating multiplier effect. SAM asymmetries magnify this channel. (JEL E32, E52, E24, E12, E25, J63)