Seminar: Policy Shocks and Wage Rigidity: Empirical Evidence From Regional Effects of National Shocks

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Maarten de Ridder (University of Cambridge)

Discussant: Joris de Wind (CPB)

Language: English

Registration: Please register here

Abstract subject:
We empirically assess the effect of wage rigidity on the impact of fiscal and monetary policy shocks. Based on 1.37 million micro observations of wage changes in the United States, state-level estimates of wage rigidity are obtained. These are used to explain differences in the state-level economic effect of identical national shocks in interest rates and military expenditure. We find that shocks in monetary policy considerably increase unemployment and decrease output in rigid states, while flexible states are barely affected. Similarly, fiscal multipliers are larger if wage rigidity is high. Our results are in line with the role of sticky wages in New Keynesian models.

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