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The missing link: monetary policy and the labor share

Cantore, Cristiano and Ferroni, Filippo and León-Ledesma, Miguel A. (2018) The missing link: monetary policy and the labor share. CFM Discussion Paper Series, CFM-DP2018-29. Centre for Macroeconomics, London, UK.

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Abstract

The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with a wide variety of NK models commonly used for monetary policy analysis and where the direct link between the labor share and the markup can be broken down.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Discussio...
Additional Information: © 2018 CFM
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation and Selection
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 28 Nov 2018 14:39
Last Modified: 04 Dec 2018 10:04
Funders: Economic & Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/90873

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