Nominal Wage Stickiness and Aggregate Supply in the Great Depression

Bernanke, Ben; Carey, Kevin

doi:10.3386/w5439

Cited by 19 publications

(17 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In conclusion, in this section, we have verified the existence of a strong inverse relationship between industrial output and real wages in the period 1929-1936, as well as of nominal wage stickiness. Despite our many modifications, our findings hence broadly concur with the original conclusions of Eichengreen and Sachs (1985) and of Bernanke and Carey (1996). An interesting observation to be made is why the wages were sticky in presence of widespread unemployment.…”

Section: The Countercyclicality Of Real Wages and Nominal Wage Stickisupporting

confidence: 88%

“…However, in 1934 it introduced foreign exchange controls and then left the gold standard de jure in 1936. It is widely acknowledged that those countries that remained on the gold standard after 1931 (the year in which the United Kingdom left the system) were the ones that experienced harsher slumps [Eichengreen and Sachs (1985); Bernanke and Carey (1996)]. Italy was probably no exception.…”

Section: Italy's Great Depression: a Review Of The Literaturementioning

confidence: 99%

“…As a reference model, we use a study by Bernanke and Carey (1996) (hereafter B-C), which, in turn, builds on earlier work by Eichengreen and Sachs (1985) (hereafter E-S). Whereas the latter use a cross section of 10 industrialized countries, including Italy, in the year 1935, B-C work with panel data, in particular, a sample of 22 countries over the period [1931][1932][1933][1934][1935][1936].…”

Section: The Countercyclicality Of Real Wages and Nominal Wage Stickimentioning

confidence: 99%

See 2 more Smart Citations

Italy's Industrial Great Depression: Fascist Price and Wage Policies

2013

View full text Add to dashboard Cite

Industrial production and employment in Italy were hard hit by the Great Depression, and remained below trend until at least 1936. Few quantitative studies have been conducted on the causes of Italy's recession and slow recovery. Using monthly data, and reviving an aggregate supply model published in Bernanke and Carey [Quarterly Journal of Economics111 (1996), 853–883], we empirically test whether Italy's 1930s industrial performance could be related to the Fascist wage and price policies, which, aiming at keeping workers' real wages constant, actually raised firms' labor costs, computed as nominal wages deflated by wholesale prices, hence stalling industrial production. We find evidence of a strong countercyclicality of real wages and of nominal wage stickiness in the period 1929–1936, which would confirm our hypothesis. Trade restrictions are found to play a smaller role in hindering industrial production than previously stated in the literature, whereas we confirm the weak transmission of financial turbulence to the real economy.

show abstract

Section: The Countercyclicality Of Real Wages and Nominal Wage Stickisupporting

confidence: 88%

Section: Italy's Great Depression: a Review Of The Literaturementioning

confidence: 99%

Section: The Countercyclicality Of Real Wages and Nominal Wage Stickimentioning

confidence: 99%

See 1 more Smart Citation

Italy's Industrial Great Depression: Fascist Price and Wage Policies

2013

View full text Add to dashboard Cite

show abstract

“…As they say, 'the solution to the aggregate supply puzzle of the Depression remains very much an open issue'. 45 Various reasons were proposed at the time and by historians more recently. Eichengreen suggests that there was a coordination problem.…”

Section: IVmentioning

confidence: 99%

Britain and Globalisation Since 1850: Ii. The Rise of Insular Capitalism, 1914–1939

Daunton¹

2007

Trans. R. Hist. Soc.

View full text Add to dashboard Cite

At the end of the First World War, the British government attempted to return to the pre-war policy trade-off of fixed exchanges rates on the gold standard, capital mobility and free trade, which entailed a sacrifice of domestic monetary policy. But the attempt proved difficult between 1919 and 1931 when the pursuit of international economic polices was constrained by a growing concern for their domestic economic and political repercussions. In the 1930s, a new policy trade-off emerged: managed exchange rates, capital controls and protectionism, with a greater concern for domestic monetary policy. The essay explains the reasons for the emergence of constraints and the subsequent abandonment of the pre-1914 policy trade-off in terms of five variables: changes in the performance of the economy and its impact on different actors; the politics of the national debt and the constraints on interest rates; the impact of capital exports on debt repayment and as an alternative to interest rates in influencing the exchanges; an adjustment in assumptions about flexibility of wages and costs; and a breakdown in the political culture of free trade and gold.

show abstract

“…In the traditional Keynesian model, persistence of high unemployment is the outcome of sluggish adjustment of nominal wages to aggregate demand shocks. If wages possess some degree of nominal inertia, then deflation will raise real wages and lower labour demand (Bernanke & Carey, 1996;Bordo, 3 It was the chronic nature of unemployment between the wars which greatly undermined the respectability of the classical theory and was an impelling force behind the development of Keynesian economics. Indeed, as Eichengreen (1987) argues, persistent unemployment in the interwar period was the crucible with which the Keynesian view of demand failure was forged.…”

Section: Introductionmentioning

confidence: 99%

Interwar Unemployment in the UK and the US: Old and New Evidence

Srinivasan

Mitra

2016

South Asian Journal of Macroeconomics and Public Finance

View full text Add to dashboard Cite

Two contrasting views have dominated the research on unemployment during the interwar years. The conventional Keynesian view attributes the persistence of high unemployment in the UK and the US during the interwar period to sluggish adjustment of nominal wages to demand shocks. In contrast, equilibrium models of unemployment suggest that the natural rate is itself endogenous, determined by technological, institutional as well as demographic factors and is therefore not necessarily constant over time. According to this view, unemployment may remain elevated because some (or all) of the driving forces are persistent. How do we discriminate between these competing explanations? To this end, we estimate a time-varying parameter (TVP) model of the unemployment rate for the UK and the US. The Kalman filter estimates of the natural rate of unemployment suggest that most macroeconomic activity during the interwar period reflects persistent movements in steady state, not from steady state. We conclude that the observed persistence in unemployment appears to be consistent with multiple equilibria models and models with an endogenous natural rate.

show abstract

Nominal Wage Stickiness and Aggregate Supply in the Great Depression

Abstract: IUCJJ1qTU © UoIc ! !AU 10 IJJG 2OfILCC fo cxccq iio bibp urnA p dnoicq i poru cxbjc bQi.wou bLoArqq JJ flJJ CLGqW

Cited by 19 publications

References 0 publications

Italy's Industrial Great Depression: Fascist Price and Wage Policies

Italy's Industrial Great Depression: Fascist Price and Wage Policies

Britain and Globalisation Since 1850: Ii. The Rise of Insular Capitalism, 1914–1939

Interwar Unemployment in the UK and the US: Old and New Evidence

Contact Info

Product

Resources

About