The missing link: monetary policy and the labor share

Cristiano Cantore, Filippo Ferroni and Miguel Leon-Ledesma

No 857, Bank of England working papers from Bank of England

Abstract: The textbook New Keynesian (NK) model implies that the labor share is procyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages during the Great Moderation period in the US, the euro area, the UK, Australia and Canada. We show that this is inconsistent not only with the basic NK model, but with medium-scale NK models commonly used for monetary policy analysis and where it is possible to break the direct link between the labor share and the inverse mark-up. Our results imply that either NK models are unable to separate the dynamics of the labor share from the markup, or that markups do not respond in the way NK models predict.

Keywords: Labor share; monetary policy shocks; DSGE models (search for similar items in EconPapers)
JEL-codes: C52 E23 E32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-04-24, Revised 2020-05-29
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: The Missing Link: Monetary Policy and The Labor Share (2021)
Working Paper: The Missing Link: Monetary Policy and The Labor Share (2019)
Working Paper: The Missing Link: Monetary policy and the labor share (2018)
Working Paper: The missing link: monetary policy and the labor share (2018)
Working Paper: The Missing Link: Monetary Policy and The Labor Share (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0857

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