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The Missing Link: Monetary Policy And The Labor Share

Cantore, Cristiano, Leon-Ledesma, Miguel and Ferroni, Filippo (2020) The Missing Link: Monetary Policy And The Labor Share Journal of the European Economic Association.

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The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with medium scale NK models commonly used for monetary policy analysis and where it is possible to break the direct link between the labor share and the inverse markup. Our results imply that either NK models are unable to separate the dynamics of the labor share from the markup, or that markups do not respond in the way NK models predict.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Leon-Ledesma, Miguel
Date : 2020
Copyright Disclaimer : © The Author(s) 2020. Published by Oxford University Press on behalf of European Economic Association. This article is published and distributed under the terms of the Oxford University Press, Standard Journals
Related URLs :
Depositing User : Clive Harris
Date Deposited : 16 Jun 2020 11:11
Last Modified : 16 Jun 2020 11:11

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