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

Evi Pappa

No 293, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

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.

Date: 2005
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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