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The Effect of Inflation on Wage Inequality: A North–South Monetary Model of Endogenous Growth with International Trade

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  • OSCAR AFONSO
  • TIAGO SEQUEIRA

Abstract

This study analyzes the effects of inflation on intra‐ and intercounty wage inequality, specialization, and growth, using a North–South endogenous growth model with international trade and money. The relationship between inflation and intracountry wage inequality depends on firms' credit constraints and on the inflation levels. Our results indicate that inflation decreases specialization in skilled production and increases intracountry wage inequality. Moreover, increasing inflation in the South increases the wage inequality gap between countries. Theoretical results are confirmed through calibration and match with existing empirical evidence.

Suggested Citation

  • Oscar Afonso & Tiago Sequeira, 2023. "The Effect of Inflation on Wage Inequality: A North–South Monetary Model of Endogenous Growth with International Trade," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(1), pages 215-249, February.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:1:p:215-249
    DOI: 10.1111/jmcb.12914
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