Can monetary policy be more inclusive of and benefit people from low- and moderate-income communities?

Join IRLE for a virtual talk with dissertation fellow Chaewon Baek, whose latest working paper seeks to shed light on this question, which is at the core of policy discussions. Baek studies heterogeneity in labor market arrangements and implications of this heterogeneity for welfare calculations and optimal policy.

Baek’s work documents that the experience of regular and irregular workers over the business cycle varies considerably. The share of irregular workers in employment is strongly countercyclical thus suggesting that firms actively use the “composition margin” of labor adjustment. Baek develops a tractable New Keynesian model featuring regular and irregular labor types to rationalize the observed dynamics to demonstrate that irregular workers pay the highest welfare costs over the business cycle. The model shows that an interest rate (Taylor) rule which reacts to employment dynamics in specific segments of the labor market (specifically, each labor market’s labor force) rather than the overall stance of the labor market generates higher welfare.

To RSVP, please email irle@berkeley.edu.