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

We quantify the role of contractionary monetary shocks and wage rigidities in the U.S. Great Contraction. While the average economy-wide real wage varied little over 1929-33, real wages rose significantly in some industries. We calibrate a two-sector model with intermediates to the 1929 U.S. economy where wages in one sector adjust slowly. We find that nominal wage rigidities can account for less than a fifth of the fall in GDP over 1929-33. Intermediate linkages play a key role, as the output decline in our benchmark is roughly half as large as in our two-sector model without intermediates.

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Paper provided by University of Western Ontario, Economic Policy Research Institute in its series University of Western Ontario, Economic Policy Research Institute Working Papers with number 20125.

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Date of creation: 2012
Date of revision:
Handle: RePEc:uwo:epuwoc:20125
Contact details of provider: Postal: Economic Policy Research Institute, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
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  1. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941 Elsevier.
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  4. Alston, Lee J. & Hatton, T. J., 1991. "The Earnings Gap Between Agricultural and Manufacturing Laborers, 1925–1941," The Journal of Economic History, Cambridge University Press, vol. 51(01), pages 83-99, March.
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  8. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2005. "The Transmission of Monetary Policy in a Multi-Sector Economy," Cahiers de recherche 20-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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