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Synchronization in wage setting and the effects of monetary policy

Olivei, Giovanni and Tenreyro, Silvana (2007) Synchronization in wage setting and the effects of monetary policy. Giovanni Olivei and Silvana Tenreyro. (Unpublished)

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Abstract

Systematic differences in the timing of wage setting decisions among industrialized countries provide an ideal framework to study the importance of wage rigidity in the transmission of monetary policy. The Japanese Shunto, for example, presents a clear case of bunching in wage setting decisions: From February to May, most firms set wages that remain in place until the following year; wage rigidity, thus, is relatively higher immediately after the Shunto. In contrast, wage agreements in Germany are well-spread within the calendar year, implying a relatively uniform degree of rigidity. We exploit the variation in timing of wage agreements within the year in Japan vis-à-vis the three largest European countries (Germany, the UK, and France) to investigate the effects of monetary policy under different degrees of effective wage rigidity. Our findings lend support to the long-held, though scarcely tested, view that wage-rigidity plays a key role in the transmission of monetary policy.

Item Type: Monograph (Working Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2007 the authors
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
JEL classification: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 22 May 2008 11:54
Last Modified: 01 Oct 2010 08:54
URI: http://eprints.lse.ac.uk/id/eprint/4990

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