Working Paper: NBER ID: w0862
Authors: Jeffrey Sachs
Abstract: Throughout the industrialized world, macroeconomic performance since the mid-1970s has been very poor, and the prospects in the near term remain bleak. While there is no consensus among macroeconomists regarding the diagnosis (or cure) of these ills, the major competing schools of thought have focused most of their blame on macroeconomic policy. This paper summarizes a series of studies, in collaboration with Michael Bruno, suggesting rather that supply shocks coupled with real wage rigidities are a central source of the poor macroeconomic performance. Various hypotheses are mentioned as a source for the resistance to real wage cuts, and some illustrations of the policy implications of supply shocks are provided.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Supply shocks (E39) | Poor macroeconomic performance (E66) |
| Rising real input prices (E31) | Reduced output and productivity growth (O49) |
| Failure to adjust real wages (F66) | High unemployment rates (J64) |
| Wage moderation (J38) | Economic recovery (E65) |
| Supply shocks (E39) | Unemployment (J64) |
| Real wage rigidities (J31) | Poor macroeconomic performance (E66) |