NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Nominal Wage Stickiness and Aggregate Supply in the Great Depression

Ben S. Bernanke, Kevin Carey

NBER Working Paper No. 5439
Issued in January 1996
NBER Program(s):   EFG

Building on earlier work by Eichengreen and Sachs, we use data for 22 countries to study the role of wage stickiness in propagating the Great Depression. Recent research suggests that monetary shocks, transmitted internationally by the gold standard, were a major cause of the Depression. Accordingly, we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships. We find that nominal wages adjusted quite slowly to falling prices, and that the resulting increases in real wages depressed output. These findings leave open the question of why wages were so inertial in the face of extreme labor market conditions.

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Document Object Identifier (DOI): 10.3386/w5439

Published: Quarterly Journal of Economics, August 1996, vol.111, no.3, pp.853-883. citation courtesy of

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