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Nominal Wage Stickiness and Aggregate Supply in the Great Depression

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  • Bernanke, Ben S
  • Carey, Kevin

Abstract

Building on earlier work by Barry Eichengreen and Jeffrey Sachs, the authors use data for twenty-two countries to study the role of wage stickiness in propagating the Great Depression. Recent research suggests that monetary shocks, transmitted internationally by the gold standard, were a major cause of the Depression. Accordingly, the authors use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships. They find that nominal wages adjusted quite slowly to falling prices and that the resulting increases in real wages depressed output. These findings leave open the question of why wages were so inertial in the face of extreme labor market conditions. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 111 (1996)
Issue (Month): 3 (August)
Pages: 853-83

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Handle: RePEc:tpr:qjecon:v:111:y:1996:i:3:p:853-83

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  1. Cooper, Russell, 1990. "Predetermined Wages and Prices and the Impact of Expansionary Government Policy," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 205-14, April.
  2. Ben S. Bernanke, 1994. "The Macroeconomics of the Great Depression: A Comparative Approach," NBER Working Papers 4814, National Bureau of Economic Research, Inc.
  3. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-74, November.
  4. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
  5. Eichengreen, Barry & Hatton, Tim, 1988. "Interwar Unemployment in International Perspective," Institute for Research on Labor and Employment, Working Paper Series qt7bw188gk, Institute of Industrial Relations, UC Berkeley.
  6. Walter Galenson & Arnold Zellner, 1957. "International Comparison of Unemployment Rates," NBER Chapters, in: The Measurement and Behavior of Unemployment, pages 439-584 National Bureau of Economic Research, Inc.
  7. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters, in: Financial Markets and Financial Crises, pages 33-68 National Bureau of Economic Research, Inc.
  9. Ben Bernanke & Harold James, 1990. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Working Papers 3488, National Bureau of Economic Research, Inc.
  10. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
  11. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
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