Working Paper: CEPR ID: DP13551
Authors: Cristiano Cantore; Filippo Ferroni; Miguel Leon Ledesma
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.
Keywords: Labor share; Monetary policy shocks; DSGE models
JEL Codes: E23; E32; C52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary Policy Tightening (E52) | Increase in Labor Share (J39) |
| Monetary Policy Tightening (E52) | Decrease in Real Wages (J39) |
| Monetary Policy Tightening (E52) | Decrease in Labor Productivity (J29) |
| Monetary Policy Tightening (E52) | Increase in Labor Share during Recessions (E25) |
| Labor Share is Countercyclical (J49) | Increase during Recessions (E32) |