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Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Re-Examining the Role of Sticky Wages in the U.S. Great Contraction: A Multisectoral Approach
Pedro S. Amaral
James MacGee
Abstract

We quantify the role of contractionary monetary shocks and nominal wage rigidities in the U.S. Great Contraction. In contrast to conventional wisdom, we find that the average economy-wide real wage varied little over 1929–33, although real wages rose significantly in some industries. Using a two-sector model with intermediates and nominal wage rigidities in one sector, we find that contractionary monetary shocks can account for only a quarter of the fall in GDP, and as little as a fifth at the trough. Intermediate linkages play a key role, as the output decline in our benchmark is roughly half as large as in a two-sector model without intermediates.


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Pedro S. Amaral & James MacGee, Re-Examining the Role of Sticky Wages in the U.S. Great Contraction: A Multisectoral Approach, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 0911, 2009, revised 18 Mar 2016.
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Note: A multi-sectoral approach to the U.S. Great Depression (2009)
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Keywords: Depressions; Wages; Prices
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