New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets

36 Pages Posted: 30 Dec 2005

See all articles by Evi Pappa

Evi Pappa

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

Date Written: October 2005

Abstract

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.

Keywords: Sticky and flexible prices, labour markets, sign-restrictions, VARs

JEL Classification: C11, E12, E32, E62

Suggested Citation

Pappa, Paraskevi (Evi), New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets (October 2005). CEPR Discussion Paper No. 5313, Available at SSRN: https://ssrn.com/abstract=872870

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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