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The Effects of Monetary-Policy Shocks on Real Wages: A Multi-Country Investigation The Effects of Monetary-Policy Shocks on Real Wages: A Multi-Country Investigationv

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This paper assesses the plausibility of popular models of the monetary transmission mechanism for the G7 countries. For this purpose, flexible structural vector autoregressions are used to relaxe the restrictions behind the traditional identifying schemes of monetary-policy shocks and their effects on macroececonomic variables, and in particular, on real wages. The estimates reveal that expansionary monetary-policy shocks produce declines of real wages for Canada, France, and the United Kingdom. This is consistent with sticky-wage models and suggests that labor-market frictions constitute prime features of these economies. In constrast, positive monetary-policy shocks yield increases of real wages for Germany, Italy, Japan, and the United States. This is consistent with sticky-price models and limited-participation models, so that goods-market frictions and/or financialmarket frictions seem important characteristics of these economies. Finally, the standard identifying restrictions are often statistically rejected and produce severe distortions of real-wage responses.

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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 06-04.

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Length: 40 pages
Date of creation: Apr 2006
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Handle: RePEc:iea:carech:0604

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Keywords: Conditional heteroscedasticity; monetary-policy indicators; orthogonality conditions.;

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