Abstract: Labor informality is a widespread phenomenon affecting over 61% of the world’s workforce; however, its macroeconomic impact is not well understood. This paper investigates how labor informality influences the transmission mechanisms of monetary policy. Using panel data from Peru’s National Household Survey (ENAHO) spanning 2012 to 2022, the paper examines the consumption, income, and employment patterns of both formal and informal workers. The findings indicate that informal workers have a higher marginal propensity to consume and that their incomes are more sensitive to economic fluctuations. Based on these findings, the paper constructs a Two-Agent New Keynesian model with informal labor markets. The model shows that informal labor markets amplify the transmission of monetary policy on output and inflation. Finally, the paper proposes some policy analyses that underscore the importance of accounting for informal labor markets when designing effective monetary policies.