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Time variation in U.S. wage dynamics

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  • Hofmann, Boris
  • Peersman, Gert
  • Straub, Roland

Abstract

Supply and demand shocks had much stronger long-run effects on nominal wages and prices during the “Great Inflation”. For supply shocks, there is even a sign switch in the nominal wage response. Before and after the “Great Inflation”, nominal wages moved in the same direction as real wages and in the opposite direction of the price level, whereas nominal wages and prices moved in the same direction at longer horizons after the shock in the 1970s. Estimation of a DSGE model shows that these results reflect changes in the degree of wage indexation over time, which was considerably higher during the “Great Inflation”.

Suggested Citation

  • Hofmann, Boris & Peersman, Gert & Straub, Roland, 2012. "Time variation in U.S. wage dynamics," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 769-783.
  • Handle: RePEc:eee:moneco:v:59:y:2012:i:8:p:769-783 DOI: 10.1016/j.jmoneco.2012.10.009
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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