Non-Linear Dynamics of Real Wages Over the Business Cycle

Journal of Applied Economics, Vol. 14, No. 1, p. 8199, May 2011

Posted: 21 Jun 2011

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Concetto Paolo Vinci

CSEF - University of Naples Federico II

Abstract

This paper aims at analysing the dynamic properties of real wages over the business cycle. We apply a Bayesian vector autoregressive (BVAR) model and analyse the possible asymmetric behaviour of real wages in response to different macroeconomic shocks. Finally, we use the NBER business cycle periodisation to evaluate how real wages interact with the different shocks during contractions and booms. The results indicate that real wages cyclicality substantially depends on the driving forces of business cycle fluctuations. Different time periods are dominated by different types of shocks. When the business cycle is mainly driven by supply-side shocks real wages present a pro-cyclical behaviour. On the contrary, when the business cycle is driven by aggregate demand shocks real wages move counter-cyclically.

Keywords: business cycle, real wage dynamics

JEL Classification: E32, J31, C32

Suggested Citation

Altavilla, Carlo and Vinci, Concetto Paolo, Non-Linear Dynamics of Real Wages Over the Business Cycle. Journal of Applied Economics, Vol. 14, No. 1, p. 8199, May 2011, Available at SSRN: https://ssrn.com/abstract=1865923

Carlo Altavilla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Concetto Paolo Vinci

CSEF - University of Naples Federico II ( email )

Via Amm. F. Acton, 38
80133 Naples, Caserta 80133
Italy

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