Sticky wages and sectoral labor comovement

Riccardo DiCecio

Journal of Economic Dynamics and Control, 2009, vol. 33, issue 3, 538-553

Abstract: A defining feature of business cycles is the comovement of inputs at the sectoral level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model that can account for this key regularity. My model incorporates three shocks to the economy: monetary policy shocks, neutral technology shocks, and embodied technology shocks in the capital-producing sector. The estimated model is able to account for the response of the U.S. economy to all three shocks. Using this model, I argue that the key friction underlying sectoral comovement is rigidity in nominal wages.

Keywords: Comovement; Business; cycles; Sticky; wages (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (102)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:3:p:538-553

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