Monetary Innovations, Capital Taxation, and Real Wage Movements: Some New Evidence

Abstract

Central to many new classical macroeconomic models is the notion that unanticipated money growth affects real wages adversely while anticipated money growth is neutral. To date, however, the empirical evidence on the subject has been mixed. Early studies of Sargent and Sims [29] and Sims [30] reported that monetary surprises had a positive effect on real wages. Leiderman [18], however, provided evidence consistent with the implications of these models. The results of more recent studies have also been ambiguous. Koray [16] concludes that anticipated money growth has an adverse effect on total real wages but unanticipated money growth is neutral. In contrast, Kim [15] finds that both anticipated and unanticipated money growth have negative effects on real wages. One difficulty with these studies is the implicit assumption that real wage movements are primarily caused by aggregate demand disturbances. In a recent paper, Sumner and Silver [33] assert that real shocks can also have an important influence on real wages and should be taken into account.'