Wage-setting patterns and monetary policy: international evidence

Systematic differences in the timing of wage-setting decisions among industrialized countries provide an ideal framework to study the importance of wage rigidity for the transmission of monetary policy. Synchronization in wage-setting decisions is prevalent in Japan and the United States, yielding varying degrees of wage rigidity within the year: instead, in France, Germany, and the United Kingdom decisions are more uniformly spread over time. Exploiting within-year variation in the timing of wage-setting decisions in these economies, we find support for the long-held but scarcely tested view that wage rigidity plays a critical role in the transmission of monetary policy.