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A note on the Pazos-Simonsen mechanism and Kaldor s early research on Latin American inflation

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  • Leonardo Vera

Abstract

In contrast with the inflationary finance story, inflation acceleration in Latin America has been explained as the result of the interaction of inflation dynamics and the frequency of wage adjustments. Accordingly, small inflation disturbances are connected with a shift from moderate to high inflation (or beyond to hyperinflation) trough a mechanism that makes adjustment intervals in wage contracts endogenous. Rudiger Dornbusch (1986) labeled this process the “Pazos-Simonsen mechanism.” In this note we summarize the basic contribution of both Felipe Pazos (1978) and Mario Henrique Simonsen (1983) and find crucial differences between their views on wage dynamics, specifically regarding the endogeneity of the time interval between wage readjustments. A remarkable affinity with Pazos’s view on wage dynamics and inflation is found in an early and almost unknown essay written by Nicholas Kaldor in 1957 (inspired in his brief experience in Latin America). JEL Classification: B31; B50; E24; E31.

Suggested Citation

  • Leonardo Vera, 2013. "A note on the Pazos-Simonsen mechanism and Kaldor s early research on Latin American inflation," Brazilian Journal of Political Economy, Center of Political Economy, vol. 33(2), pages 260-280.
    • Handle: RePEc:ekm:repojs:v:33:y:2013:i:2:p:260-280:id:311
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    Cited by:

    1. Sébastien Charles & Jonathan Marie, 2021. "How Israel avoided hyperinflation. The success of its 1985 stabilization plan in the light of post-Keynesian theory," Review of International Political Economy, Taylor & Francis Journals, vol. 28(3), pages 528-558, May.

    More about this item

    Keywords

    Latin America; inflation; wage dynamics; Pazos-Simonsen mechanism;
    All these keywords.

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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