Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2016:10: Fixed Wage Contracts and Monetary Non-Neutrality

Maria Björklund (), Mikael Carlsson () and Oskar Nordström Skans ()
Additional contact information
Maria Björklund: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Mikael Carlsson: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Oskar Nordström Skans: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: We study the importance of wage rigidities for the monetary policy transmission mechanism. Using uniquely rich micro data on Swedish wage negotiations, we isolate periods when the labor market is covered by fixed wage contracts. Importantly, negotiations are coordinated in time but their seasonal patterns are far from deterministic. Using a VAR model, we document that monetary policy shocks have a substantially larger impact on production during fixed wage episodes as compared to the average response. The results are not driven by the periodic structure, nor the seasonality, of the renegotiation episodes.

Keywords: Monetary Policy; Wages; Nominal rigidities; Micro-data

JEL-codes: E23; E24; E58; J41

30 pages, August 17, 2016

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