Nominal Wage Stickiness and Aggregate Supply in the Great Depression

46 Pages Posted: 15 Jul 2000 Last revised: 14 May 2021

See all articles by Ben S. Bernanke

Ben S. Bernanke

Board of Governors of the Federal Reserve System

Kevin Carey

World Bank Institute

Date Written: January 1996

Abstract

Building on earlier work by Eichengreen and Sachs, we use data for 22 countries to study the role of wage stickiness in propagating the Great Depression. Recent research suggests that monetary shocks, transmitted internationally by the gold standard, were a major cause of the Depression. Accordingly, we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships. We find that nominal wages adjusted quite slowly to falling prices, and that the resulting increases in real wages depressed output. These findings leave open the question of why wages were so inertial in the face of extreme labor market conditions.

Suggested Citation

Bernanke, Ben S. and Carey, Kevin, Nominal Wage Stickiness and Aggregate Supply in the Great Depression (January 1996). NBER Working Paper No. w5439, Available at SSRN: https://ssrn.com/abstract=225496

Ben S. Bernanke (Contact Author)

Board of Governors of the Federal Reserve System

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Washington, DC 20551
United States

Kevin Carey

World Bank Institute ( email )

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Washington, DC 20433
United States

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