New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets

IGIER Working Paper No. 293

35 Pages Posted: 18 Dec 2005  

Evi Pappa

London School of Economics & Political Science (LSE); Autonomous University of Barcelona - Department of Economics and Economic History

Date Written: July 2004

Abstract

We study the mechanics of transmission of fiscal shocks to labor 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.

Keywords: sticky and flexible prices, labor markets, sign-restrictions, VARs

JEL Classification: C11, E12, E32, E62

Suggested Citation

Pappa, Evi, New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets (July 2004). IGIER Working Paper No. 293. Available at SSRN: https://ssrn.com/abstract=870764 or http://dx.doi.org/10.2139/ssrn.870764

Paraskevi (Evi) Pappa (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7584 (Phone)
+44 20 7831 1840 (Fax)

Autonomous University of Barcelona - Department of Economics and Economic History ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

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