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Real Wage Cyclicality and Monetary Policy

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  • Eunseong Ma

    (Yonsei University)

Abstract

Conventional wisdom based on many empirical studies has long held that real wages are procyclical conditional on a monetary policy shock. This paper challenges this conventional view by developing a quantitative heterogeneous-agent New Keynesian economy with sticky wages. I find that true real wages may be countercyclical conditional on a monetary policy shock, but the data may predict the wrong direction of the real wage dynamics due to the inconsistent definition. This result implies that the predictions of New Keynesian models with wage rigidities are consistent with the data.

Suggested Citation

  • Eunseong Ma, 2022. "Real Wage Cyclicality and Monetary Policy," Working papers 2022rwp-201, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2022rwp-201
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    References listed on IDEAS

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    Cited by:

    1. Niu, Xiaoxiao & Harvey, Nigel, 2023. "Are lay expectations of inflation based on recall of specific prices? If so, how and under what conditions?," Journal of Economic Psychology, Elsevier, vol. 98(C).

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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