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Real wages, monetary accommodation, and inflation

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  • Helpman, Elhanan
  • Leiderman, Leonardo

Abstract

We analyze the dynamics of inflation in an economy characterized by a forward-looking, staggered, price and wage determination process, and by monetary accommodation. In our model, inflation reconciles the conflicting claims of workers and firms. The model is capable of generating a positive association between real wages and inflation, of the type that has been observed in some high-inflation countries. It generates a price-wage spiral but does not result in inflationary inertia.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 34 (1990)
Issue (Month): 5 (July)
Pages: 897-911

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Handle: RePEc:eee:eecrev:v:34:y:1990:i:5:p:897-911

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  1. Olivier J. Blanchard, 1985. "The Wage Price Spiral," Working papers 400, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 9-84, January.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  4. Rudiger Dornbusch & Mario Henrique Simonsen, 1987. "Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel," NBER Working Papers 2153, National Bureau of Economic Research, Inc.
  5. repec:nbr:nberre:0126 is not listed on IDEAS
  6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  7. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
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