Monetary policy and real wage cyclicality

Chandranath Amarasekara and George Bratsiotis ()

Applied Economics, 2012, vol. 44, issue 33, 4391-4408

Abstract: This article points to the potential role of monetary policy in affecting the degree of real wage cyclicality. We show that the degree and direction of real wage cyclicality is determined by the interaction of (i) the returns to scale in production, (ii) the nature of aggregate shocks and (iii) monetary policy. Given that production technology is fairly constant in the short run, we suggest that variations in the real wage -- output covariance depend largely on the combination of the latter two. Identifying well-documented monetary policy phases in six major Organization for Economic Co-operation and Development (OECD) countries and accounting for both aggregate demand and supply shocks, we provide empirical evidence to support our main theoretical claim.

Date: 2012
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Working Paper: Monetary Policy and Real Wage Cyclicality (2009)
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DOI: 10.1080/00036846.2011.589823

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