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Wage setting patterns and monetary policy: international evidence

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  • Olivei, Giovanni
  • Tenreyro, Silvana

Abstract

Systematic differences in the timing of wage setting decisions among industrialized countries provide an ideal framework to study the importance of wage rigidity in the transmission of monetary policy. The Japanese Shunto presents the most well-known case of bunching in wage setting decisions: From February to May, most firms set wages that remain in place until the following year; wage rigidity, thus, is relatively higher immediately after the Shunto. Similarly, in the United States, a large fraction of firms adjust wages in the last quarter of the calendar year. In contrast, wage agreements in Germany are well-spread within the year, implying a relatively uniform degree of rigidity. We exploit variation in the timing of wagesetting decisions within the year in Japan, the United States, Germany, the United Kingdom, and France to investigate the effects of monetary policy under different degrees of effective wage rigidity. Our findings lend support to the long-held, though scarcely tested, view that wage-rigidity plays a key role in the transmission of monetary policy.

Suggested Citation

  • Olivei, Giovanni & Tenreyro, Silvana, 2008. "Wage setting patterns and monetary policy: international evidence," LSE Research Online Documents on Economics 19572, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:19572
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    More about this item

    Keywords

    monetary policy; wage rigidity; seasonality;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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