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

51 Pages Posted: 31 Jan 2019

See all articles by Ester Faia

Ester Faia

Goethe University Frankfurt; Kiel Institute for the World Economy; University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Vincenzo Pezone

Goethe University Frankfurt - Research Center SAFE

Date Written: January 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.

Keywords: heterogeneous monetary policy response, distributional consequences of monetary policy, employer-employee level dataset, monetary policy surprise shocks, heterogeneous wage rigidity

Suggested Citation

Faia, Ester and Pezone, Vincenzo, Monetary Policy and the Cost of Wage Rigidity: Evidence from the Stock Market (January 2018). SAFE Working Paper No. 242 (2019). Available at SSRN: https://ssrn.com/abstract=3326397 or http://dx.doi.org/10.2139/ssrn.3326397

Ester Faia

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Kiel Institute for the World Economy

P.O. Box 4309
Kiel, D-24100
Germany

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

Vincenzo Pezone (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 69 798 33706 (Phone)

HOME PAGE: http://sites.google.com/site/vpezone/

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