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Monetary policy and real wage cyclicality

  • Chandranath Amarasekara
  • George J. Bratsiotis

This article points to the potential role of monetary policy in affecting the degree of real wage cyclicality. We show that the degree and direction of real wage cyclicality is determined by the interaction of (i) the returns to scale in production, (ii) the nature of aggregate shocks and (iii) monetary policy. Given that production technology is fairly constant in the short run, we suggest that variations in the real wage -- output covariance depend largely on the combination of the latter two. Identifying well-documented monetary policy phases in six major Organization for Economic Co-operation and Development (OECD) countries and accounting for both aggregate demand and supply shocks, we provide empirical evidence to support our main theoretical claim.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.589823
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 33 (November)
Pages: 4391-4408

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Handle: RePEc:taf:applec:44:y:2012:i:33:p:4391-4408
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  1. Spencer, David E, 1998. "The Relative Stickiness of Wages and Prices," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 120-37, January.
  2. Artus, P. & Avouyi-Dovi, S. & Bleuze, E. & Lecointe, F., 1991. "Transmission of U.S. monetary policy to Europe and asymmetry in the European monetary system," European Economic Review, Elsevier, vol. 35(7), pages 1369-1384, October.
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  15. Andrea Brischetto & Graham Voss, 1999. "A Structural Vector Autoregression Model of Monetary Policy in Australia," RBA Research Discussion Papers rdp1999-11, Reserve Bank of Australia.
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