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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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File URL: http://www.imf.org/External/Pubs/FT/staffp/2004/01/pdf/braumann.pdf
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Article provided by Palgrave Macmillan Journals in its journal IMF Staff Papers.

Volume (Year): 51 (2004)
Issue (Month): 1 ()
Pages: 6
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Handle: RePEc:pal: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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This page was last updated on 2009-11-30.

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