Does monetary policy favor the skilled?

The paper explores the redistributive effects of a monetary policy in a limited participation framework and skill heterogeneity among labor. The main finding is that an expansionary monetary policy redistributes consumption between financial market participants and non participants, as well as increases the time allocated towards skill formation leading to increased human capital of financial market participants. Further, expansionary monetary policy has positive effect on the economy as opposed to the benchmark limited participation model where output decreases as a result of monetary expansion. In a crisis scenario induced by a negative technology shock, expansionary monetary policy induces higher labor supply of low-skilled households while that of high skilled workers decrease. The direction of change for high-skilled labor supply is not influenced by the cyclicality of monetary policy. Whereas an expansionary monetary policy shock alleviates the effect of negative technology shock for traders, it implies larger fall in the consumption of non-traders. Inclusion of heterogeneity allows for stronger redistributive effects of monetary policy which increases inequality between traders and non-traders in favor of the former. Results indicate that the welfare-improving role of monetary policy is diminished. The model is calibrated to the US economy