Real Wage Cyclicality and Monetary Policy

Ma Eunseong ()
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Ma Eunseong: School of Economics, 26721 Yonsei University , 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, South Korea

The B.E. Journal of Macroeconomics, 2025, vol. 25, issue 2, 461-498

Abstract: Empirical evidence shows that real wages are procyclical and the labor share is countercyclical conditional on monetary policy shocks, a pattern that the standard New Keynesian model fails to capture. This study addresses this inconsistency by developing a quantitative heterogeneous-agent New Keynesian model with sticky wages. I demonstrate that incorporating household heterogeneity resolves this discrepancy. The model successfully generates procyclical real average hourly earnings and a countercyclical labor share, while maintaining countercyclical real wages per efficiency unit of labor. These findings underscore the importance of accurately defining real wages in empirical data to ensure alignment with theoretical models.

Keywords: monetary policy; real wages; labor share; earnings inequality (search for similar items in EconPapers)
JEL-codes: D31 E52 J31 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/bejm-2023-0189

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