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

  • Bob Hart
  • Jim Malley

    ()

  • Ulrich Woitek

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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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2001_2.

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Date of creation: Mar 2001
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Handle: RePEc:gla:glaewp:2001_2
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  1. 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.
  2. Bob Hart & Jim Malley, 1999. "On the Cyclicality and Stability of Real Earnings," Working Papers 1999_13, Business School - Economics, University of Glasgow.
  3. 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.
  4. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
  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. 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.
  9. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
  10. Ulrich Woitek, 1998. "A Note on the Baxter-King Filter," Working Papers 9813, Business School - Economics, University of Glasgow.
  11. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
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