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Real Wages and the Cycle: The View from the Frequency Domain

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  • Hart, Robert A.

    ()
    (University of Stirling)

  • Malley, James R.

    ()
    (University of Glasgow)

  • Woitek, Ulrich

    ()
    (University of Zurich)

Abstract

In the time domain, the observed cyclical behavior of the real wage hides a range of economic in infuences that give rise to cycles of differing lengths and amplitudes. This may serve to produce a distorted picture of wage cyclicality. Here, we employ frequency domain methods that allow us decompose wages into cyclical components and to assess the relative contribution of each component. These are discussed in relation to wages alone (the univariate case) and to wages in relation to production or employment-based measures of the cycle (multivariate). In the multivariate dimension, we derive methods for determining whether (i) wage and business cycles cohere (ii) lead-lag or contemporaneous relationships exist and (iii) the degree of coherency between wage and business cycles is time dependent. We establish that real wages are strongly procyclical and that the business cycle is the dominant associated influence.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 325.

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Length: 38 pages
Date of creation: Jul 2001
Date of revision:
Publication status: published as 'Real earnings and business cycles: new evidence' in: Empirical Economics, 2009, 37 (1), 51-71
Handle: RePEc:iza:izadps:dp325

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Keywords: real wage cycles; Frequency domain; univariate case; multivariate case; phase shift;

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  1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  2. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
  3. Timothy Cogley & James M. Nason, 1993. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series: implications for business cycle research," Working Papers in Applied Economic Theory 93-01, Federal Reserve Bank of San Francisco.
  4. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  5. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
  6. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. A'Hearn, Brian & Woitek, Ulrich, 2001. "More international evidence on the historical properties of business cycles," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 321-346, April.
  8. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-88, September.
  9. Hart, Robert A. & Malley, James R., 1999. "On the Cyclicality and Stability of Real Earnings," IZA Discussion Papers 45, Institute for the Study of Labor (IZA).
  10. Ulrich Woitek, 1998. "A Note on the Baxter-King Filter," Working Papers, Business School - Economics, University of Glasgow 9813, Business School - Economics, University of Glasgow.
  11. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
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