Monetary shocks and sticky wages in the U.S. great contraction: A multi-sector approach |
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| Affiliation: | 1. Department of Economics, Mihaylo College of Business and Economics, California State University Fullerton, Fullerton, CA 92834, United States;2. Department of Economics, University of Western Ontario, London, ON N6A 5C2, Canada;1. Duke’s Fuqua School of Business, Duke University, 100 Fuqua Drive, Durham, NC 27708, USA;2. Department of Research, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309, USA |
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| Abstract: | We quantify the role of contractionary monetary shocks and nominal wage rigidities in the U.S. Great Contraction. In contrast to conventional wisdom, we find little increase in the economy-wide real wage over 1929–33, although real wages rose significantly in some industries. In the context of a two-sector model with intermediates and nominal wage rigidities in one sector, contractionary monetary shocks account for only a third of the fall in GDP. Intermediate linkages play an important role, as the output decline without intermediates is almost a third larger at the trough. The role of nominal wage rigidities beyond their interaction with monetary shocks is limited. |
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