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Nominal Wage Stickiness and Aggregate Supply in the Great Depression

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Author Info
Ben S. Bernanke
Kevin Carey

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Abstract

Building on earlier work by Eichengreen and Sachs, we use data for 22 countries to study the role of wage stickiness in propagating the Great Depression. Recent research suggests that monetary shocks, transmitted internationally by the gold standard, were a major cause of the Depression. Accordingly, we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships. We find that nominal wages adjusted quite slowly to falling prices, and that the resulting increases in real wages depressed output. These findings leave open the question of why wages were so inertial in the face of extreme labor market conditions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5439.

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Date of creation: Jan 1996
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Handle: RePEc:nbr:nberwo:5439

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Find related papers by JEL classification:
N31 - Economic History - - Labor and Consumers, Demography, Education, Income, and Wealth - - - U.S.; Canada: Pre-1913
N32 - Economic History - - Labor and Consumers, Demography, Education, Income, and Wealth - - - U.S.; Canada: 1913-

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1980-1), pages 91-142. [Downloadable!]
  3. Barry Eichengreen & Tim Hatton, 1988. "Interwar Unemployment in International Perspective," Institute for Research on Labor and Employment, Working Paper Series 1040, Institute of Industrial Relations, UC Berkeley. [Downloadable!]
  4. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 1-28, February. [Downloadable!] (restricted)
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  5. Cooper, Russell, 1990. "Predetermined Wages and Prices and the Impact of Expansionary Government Policy," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 205-14, April. [Downloadable!] (restricted)
  6. Ben Bernanke & Harold James, 1990. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Working Papers 3488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-74, November. [Downloadable!] (restricted)
  8. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters, in: Financial Markets and Financial Crises, pages 33-68 National Bureau of Economic Research, Inc. [Downloadable!]
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