Working Paper Abstract
293."New-Keynesian or RBC transmission? The effects of fiscal shocks in labor markets"by Evi Pappa
We study the mechanics of transmission of fiscal shocks to labor markets. Wecharacterize a set of robust implications following government consumption, investmentand employment shocks in a RBC and a New-Keynesian model and use part of them toidentify shocks in the data. In line with the New-Keynesian story, shocks to governmentconsumption and investment increase real wages and employment contemporaneouslyboth in US aggregate and in US state data. The dynamics in response to employmentshocks are mixed, but in many cases are inconsistent with the predictions of the RBCmodel.
JEL classification: C11, E12, E32, E62.Key Words: sticky and flexible prices, labor markets, sign-restrictions, VARs.
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