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High Inflation and Real Wages

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Author Info
Benedikt Braumann (International Monetary Fund)
Abstract

Empirical data show that real wages fall sharply during periods of high inflation. This paper suggests a simple general equilibrium explanation, without relying on nominal rigidities. It presents an intertemporal two-sector model with a credit channel of monetary transmission. In this setting, inflation reduces real wages through (1) a decline of the capital stock, and (2) a shift in relative prices. The two effects are additive and make the decline in real wages exceed the decline in per capita GDP. This mechanism may contribute to rising poverty during periods of high inflation. Copyright 2004, International Monetary Fund

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Article provided by International Monetary Fund in its journal IMF Staff Papers.

Volume (Year): 51 (2004)
Issue (Month): 1 ()
Pages: 6
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Handle: RePEc:imf:imfstp:v:51:y:2004:i:1:p:6

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E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393. [Downloadable!] (restricted)
  2. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  3. Orphanides, Athanasios & Solow, Robert M., 1990. "Money, inflation and growth," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 6, pages 223-261 Elsevier. [Downloadable!] (restricted)
  4. Abel, Andrew B., 1985. "Dynamic behavior of capital accumulation in a cash-in-advance model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 55-71, July. [Downloadable!] (restricted)
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  5. Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 00/85, International Monetary Fund.
  6. Eliana Cardoso, 1992. "Inflation and Poverty," NBER Working Papers 4006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Enrique G. Mendoza & Martin Uribe, 1999. "The Business Cycles of Balance-of-Payment Crises: A Revision of Mundellan Framework," NBER Working Papers 7045, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Atish Ghosh & Steven Phillips, 1998. "Warning: Inflation May Be Harmful to Your Growth," IMF Staff Papers, Palgrave Macmillan Journals, vol. 45(4), pages 5. [Downloadable!] (restricted)
  9. Dornbusch, Rudiger & Edwards, Sebastian, 1989. "The macroeconomics of populism in Latin America," Policy Research Working Paper Series 316, The World Bank. [Downloadable!]
  10. Atish Ghosh & Steven Phillips, 1998. "Warning: Inflation May Be Harmful to Your Growth," IMF Staff Papers, International Monetary Fund, vol. 45(4), pages 5. [Downloadable!]
  11. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories," NBER Working Papers 5197, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. F. Heylen & L. Pozzi & J. Vandewege, 2004. "Inflation crises, human capital formation and growth," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/260, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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