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Nominal Wage Stickiness and Aggregate Supply in the Great Depression

Ben Bernanke and Kevin Carey ()

No 5439, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Building on earlier work by Eichengreen and Sachs, we use data for 22 countries to study the role of wage stickiness in propagating the Great Depression. Recent research suggests that monetary shocks, transmitted internationally by the gold standard, were a major cause of the Depression. Accordingly, we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships. We find that nominal wages adjusted quite slowly to falling prices, and that the resulting increases in real wages depressed output. These findings leave open the question of why wages were so inertial in the face of extreme labor market conditions.

JEL-codes: N31 N32 (search for similar items in EconPapers)
Date: 1996-01
Note: EFG
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Published as Quarterly Journal of Economics, August 1996, vol.111, no.3, pp.853-883.

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