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Re-Examining the Role of Sticky Wages in the U.S. Great Contraction: A Multisectoral Approach

Author

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  • Pedro S. Amaral
  • James MacGee

Abstract

We quantify the role of contractionary monetary shocks and nominal wage rigidities in the U.S. Great Contraction. In contrast to conventional wisdom, we find that the average economy-wide real wage varied little over 1929?33, although real wages rose significantly in some industries. Using a two-sector model with intermediates and nominal wage rigidities in one sector, we find that contractionary monetary shocks can account for only a quarter of the fall in GDP, and as little as a fifth at the trough. Intermediate linkages play a key role, as the output decline in our benchmark is roughly half as large as in a two-sector model without intermediates.

Suggested Citation

  • Pedro S. Amaral & James MacGee, 2009. "Re-Examining the Role of Sticky Wages in the U.S. Great Contraction: A Multisectoral Approach," Working Papers (Old Series) 0911, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0911
    Note: A multi-sectoral approach to the U.S. Great Depression (2009)
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    1. A multi-sectoral approach to the U.S. Great Depression
      by Christian Zimmermann in NEP-DGE blog on 2010-02-08 07:58:23

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    2. Lee E. Ohanian, 2016. "The Great Recession in the Shadow of the Great Depression: A Review Essay on “Hall of Mirrors: The Great Depression, The Great Recession and the Uses and Misuses Of History”," NBER Working Papers 22239, National Bureau of Economic Research, Inc.

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    Keywords

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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