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Real Wage Cyclicality and Monetary Policy

Author

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  • Ma Eunseong

    (School of Economics, 26721 Yonsei University , 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, South Korea)

Abstract

Empirical evidence shows that real wages are procyclical and the labor share is countercyclical conditional on monetary policy shocks, a pattern that the standard New Keynesian model fails to capture. This study addresses this inconsistency by developing a quantitative heterogeneous-agent New Keynesian model with sticky wages. I demonstrate that incorporating household heterogeneity resolves this discrepancy. The model successfully generates procyclical real average hourly earnings and a countercyclical labor share, while maintaining countercyclical real wages per efficiency unit of labor. These findings underscore the importance of accurately defining real wages in empirical data to ensure alignment with theoretical models.

Suggested Citation

  • Ma Eunseong, 2025. "Real Wage Cyclicality and Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 25(2), pages 461-498.
    • Handle: RePEc:bpj:bejmac:v:25:y:2025:i:2:p:461-498:n:1002
    DOI: 10.1515/bejm-2023-0189
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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