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New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets

Evi Pappa ()

No 5313, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the mechanics of transmission of fiscal shocks to labour markets. We characterize a set of robust implications following government consumption, investment and employment shocks in a RBC and a New-Keynesian model and use part of them to identify shocks in the data. In line with the New-Keynesian story, shocks to government consumption and investment increase real wages and employment contemporaneously both in US aggregate and in US state data. The dynamics in response to employment shocks are mixed, but in many cases are inconsistent with the predictions of the RBC model.

Keywords: labour markets; sign-restrictions; sticky and flexible prices; VARs (search for similar items in EconPapers)
JEL-codes: C11 E12 E32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2005-10
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