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The Relative Stickiness of Wages and Prices

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Author Info
Spencer, David E
Abstract

While many modern business cycle theories posit the existence of nominal wage and/or output price stickiness, their relative importance remains an unsettled issue. Using a structural VAR model, this paper exploits evidence on the behavior of real wages to assess the relative importance of these two sources of stickiness. The empirical results suggest that a positive shock to aggregate demand causes a significant temporary fall in real wages. This is taken as evidence that sticky wages have played a more important role than sticky prices in transmitting aggregate demand shocks to real economic activity in the postwar United States. Copyright 1998 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 36 (1998)
Issue (Month): 1 (January)
Pages: 120-37
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Handle: RePEc:oup:ecinqu:v:36:y:1998:i:1:p:120-37

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  2. Martin B. Schmidt, 2003. "The relative adjustment of wages and prices: direct tests within a multiple-equation system," Applied Economics, Taylor and Francis Journals, vol. 35(8), pages 985-997, January. [Downloadable!] (restricted)
  3. Jaromir Benes & Tibor Hledik & Michael Kumhof & David Vavra, 2005. "An Economy in Transition and DSGE: What the Czech National Bank’s New Projection Model Needs," Working Papers 2005/12, Czech National Bank, Research Department. [Downloadable!]
  4. Steinar Holden, 2001. "Monetary Policy and Nominal Rigidities under Low Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  5. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Thomas J. Carter, 2005. "Monetary Policy, Efficiency Wages, and Nominal Wage Rigidities," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 349-359, Summer. [Downloadable!]
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