Economics at your fingertips  

Real Wages and Aggregate Demand Shocks: Contradictory Evidence from Vars

William Lastrapes ()

Working Papers from Georgia - College of Business Administration, Department of Economics

Abstract: This paper revisits two recently published estimates (in Gamber and Joutz 1993, and Spencer 1998) of the dynamic effects of aggregate demand shocks on real wages. Despite identical data and similar reliance on long-run restrictions to identify the economic structure of a VAR model of real wages, productive activity and unemployment, the studies' findings are contradictory. I conclude that the sensitivity of these estimates is due to differences in the treatment of a potential deterministic trend in the unemployment rate. To enhance robustness of the estimated responses, I incorporate other variables into the VAR (money, interest rates and prices) and employ long-run monetary neutrality as the primary identifying restriction. I find that real wages respond positively to money supply, or aggregate demand, shocks, implying that nominal output prices are more rigid than wages in the face of such shocks. Furthermore, there is no evidence of absolute nominal wage rigidity in response to money supply shocks. The approach of this paper and its findings improve our confidence in the use of VARs with long-run restrictions.

Keywords: EVALUATION; ECONOMIC MODELS; WAGES (search for similar items in EconPapers)
JEL-codes: E10 E30 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2000
References: Add references at CitEc
Citations: Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Real wages and aggregate demand shocks: contradictory evidence from VARs (2002) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from Georgia - College of Business Administration, Department of Economics U.S.A.; The University of Georgia, College of Business Administration, Department of Economics, Athens, GA 30602. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().

Page updated 2023-01-05
Handle: RePEc:fth:georec:99-476