Monetary Policy and the Cost of Heterogeneous Wage Rigidity: Evidence from the Stock Market

48 Pages Posted: 7 Jan 2019

See all articles by Ester Faia

Ester Faia

Goethe University Frankfurt

Vincenzo Pezone

Goethe University Frankfurt

Date Written: December 2018

Abstract

Using a unique confidential contract level dataset merged with firm-level asset price data, we find robust evidence that firms' stock market valuations and employment levels respond more to monetary policy announcements the higher the degree of wage rigidity. Data on the renegotiations of collective bargaining agreements allow us to construct an exogenous measure of wage rigidity. We also find that the amplification induced by wage rigidity is stronger for firms with high labor intensity and low profitability, providing evidence of distributional consequences of monetary policy. We rationalize the evidence through a model in which firms in different sectors feature different degrees of wage rigidity due to staggered renegotiations vis-a-vis unions.

Suggested Citation

Faia, Ester and Pezone, Vincenzo, Monetary Policy and the Cost of Heterogeneous Wage Rigidity: Evidence from the Stock Market (December 2018). CEPR Discussion Paper No. DP13407, Available at SSRN: https://ssrn.com/abstract=3310316

Ester Faia (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Vincenzo Pezone

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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