Essays on the Real Effects of Monetary Policy

Abstract

In this dissertation I investigate the question of how monetary policy affects the real economy. Each chapter looks at a different component of the macroeconomy.

In the first chapter I study how empirically observed consumption behavior influences monetary policy transmission into output and prices. I show that extensive margin changes in employment status lead households to consume disproportionately more flexible price goods. In contrast to that, intensive margin changes of permanent income prompt households to consume more sticky prices goods. In a multi-sector New Keynesian model with labor market frictions, non-homothetic preferences and home-production I argue that monetary policy - even if solely interested in price stability - should take into account developments in the labor market and optimally follows a dual mandate in inflation and employment stabilization.

In the second chapter I study labor market responses to monetary policy shocks using individual-level microdata. In particular I distinguish between intensive margin responses of hourly wages and hours worked and extensive margin responses of changes in labor market status. I find that expansionary monetary policy shocks have little effects on hourly wages and hours worked and thus do not influence the intensive margin. However, they have significant extensive margin effects through increasing employment and labor force participation.

In the third chapter I empirically investigate how monetary policy during the financial crisis affected firm investment and firm financial outcomes. To that end I examine the floating-rate channel of firm bond-financing and study how the unexpected reduction of policy rates at the onset of the crisis differentially affected firms depending on whether they issued floating-rate or fixed-rate coupon bonds before the crisis. I show that “treated” floating-rate issuers reduced real investment less than fixed-rate issuers but otherwise had little differences in financial outcomes.