DP5313 New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets
|Publication Date:||October 2005|
|Keyword(s):||labour markets, sign-restrictions, sticky and flexible prices, VARs|
|JEL(s):||C11, E12, E32, E62|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5313|
We study the mechanics of transmission of fiscal shocks to labour markets. We characterize a set of robust implications following government consumption, investment and employment shocks in a RBC and a New-Keynesian model and use part of them to identify shocks in the data. In line with the New-Keynesian story, shocks to government consumption and investment increase real wages and employment contemporaneously both in US aggregate and in US state data. The dynamics in response to employment shocks are mixed, but in many cases are inconsistent with the predictions of the RBC model.