The Effects of Monetary-Policy Shocks on Real Wages: A Multi-Country Investigation The Effects of Monetary-Policy Shocks on Real Wages: A Multi-Country Investigationv

This paper assesses the plausibility of popular models of the monetary transmission mechanism for the G7 countries. For this purpose, flexible structural vector autoregressions are used to relaxe the restrictions behind the traditional identifying schemes of monetary-policy shocks and their effects on macroececonomic variables, and in particular, on real wages. The estimates reveal that expansionary monetary-policy shocks produce declines of real wages for Canada, France, and the United Kingdom. This is consistent with sticky-wage models and suggests that labor-market frictions constitute prime features of these economies. In constrast, positive monetary-policy shocks yield increases of real wages for Germany, Italy, Japan, and the United States. This is consistent with sticky-price models and limited-participation models, so that goods-market frictions and/or financialmarket frictions seem important characteristics of these economies. Finally, the standard identifying restrictions are often statistically rejected and produce severe distortions of real-wage responses.