Authors: Justin Bloesch and Jacob P. Weber
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Staff Reports
Structural Changes in Investment and the Waning Power of Monetary Policy
Number 1190
March 2026
March 2026
JEL classification: E21, E22, E32, E52, F41
We argue that secular change in both the production and composition of investment goods has weakened investment’s role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes weakening this channel: (i) labor’s share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 23 percent weaker response of labor income and a 17 percent weaker response of consumption to real interest rate shocks in a 2020s economy relative to a 1960s economy.
Author Disclosure Statement(s)
Justin Bloesch
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Jacob Weber
Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Jacob Weber
Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Bloesch, Justin, and Jacob P. Weber. 2026. “Structural Changes in Investment and the Waning Power of Monetary Policy.” Federal Reserve Bank of New York Staff Reports, no. 1190, March. https://doi.org/10.59576/sr.1190
Bloesch, Justin, and Jacob P. Weber. 2026. “Structural Changes in Investment and the Waning Power of Monetary Policy.” Federal Reserve Bank of New York Staff Reports, no. 1190, March. https://doi.org/10.59576/sr.1190
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