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

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Abstract

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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  • Pedro S. Amaral & James C. MacGee, 2012. "Re-Examining the Role of Sticky Wages in the U.S. Great Contraction: A Multi-sector Approach," University of Western Ontario, Economic Policy Research Institute Working Papers 20125, University of Western Ontario, Economic Policy Research Institute.
  • Handle: RePEc:uwo:epuwoc:20125
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Great Depression; Sectoral Models; Sticky Wages;

    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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