Cristiano Cantore (University of Surrey)
"The Profit Share, the Labor Share, and Monetary Policy Shocks"
Despite its importance, studies on the effect of monetary policy shocks on the laborshare and the share of corporate profits are very limited. In this paper we fill this gap in twoways. Firstly, we provide new and robust evidence on the effects of MP shocks: cyclically,a monetary policy tightening (easing) increased (decreased) the labor share and decreased(increased) the corporate profits share, real wages, and labor productivity during the GreatModeration period. We obtain these results using state of the art VAR identification techniquesfor a set of six developed economies: the US, the Euro Area, UK, Australia, Japan andCanada. These facts are also robust across time, across economies, identification methods,and information sets. Secondly, we compare these stylized facts with the implied responsesof these variables in a variety of widely used models of the business cycle displaying pricerigidity, wage rigidity, labor market frictions, and other real rigidities. Using a mix of analyticaland numerical results we show that there is no combination of parameter values thatis able to reproduce the four impulse responses of the labor share, profit share, real wagesand labor productivity under any permutation of the NK DSGE models.