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 fi nd that the average economy-wide real wage varied little over 1929-33, although real wages rose signifi cantly in some industries. Using a two-sector model with intermediates and nominal wage rigidities in one sector, we fi nd that contractionary monetary shocks can account for only a quarter of the fall in GDP, and as little as a fi fth at the trough. Inte… Show more
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