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Money, Wages and Inflation in Middle-Income Developing Countries

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  • Pierre-Richard Agénor
  • Alexander W. Hoffmaister

Abstract

This paper examines the short-run links between money growth, exchange rate depreciation, nominal wage growth, the output gap, and inflation in Chile, Korea, Mexico, and Turkey, using a generalized vector autoregression analysis. Nominal historical wage shocks are shown to have an important effect on movements in inflation only in Mexico. Generalized impulse response functions show that a positive historical shock to nominal wage growth generates a transitory but significant reduction in output. Inflation increases in all countries, particularly Mexico. A positive shock to nominal money growth raises real cash balances on impact and exerts an expansionary effect on output, despite an increase in real wages.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 97/174.

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Length: 38
Date of creation: 01 Dec 1997
Date of revision:
Handle: RePEc:imf:imfwpa:97/174

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Cited by:
  1. Zeren, Fatma & Korap, Levent, 2010. "A cost-based empirical model of the aggregate price determination for the Turkish economy: a multivariate cointegration approach," MPRA Paper 23655, University Library of Munich, Germany.
  2. Frigyes F Heinz & Yan Sun, 2014. "Sovereign CDS Spreads in Europe: The Role of Global Risk Aversion, Economic Fundamentals, Liquidity, and Spillovers," IMF Working Papers 14/17, International Monetary Fund.
  3. Vratislav Izak, 2001. "External Factors in Czech Disinflation (Dynamic Analysis)," Archive of Monetary Policy Division Working Papers 2001/35, Czech National Bank.
  4. Aykut Kibritcioglu, 2004. "A Short Review of the Long History of Turkish High Inflation," Macroeconomics 0404003, EconWPA.
  5. M S Mohanty & Marc Klau, 2001. "What determines inflation in emerging market economies?," BIS Papers chapters, in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 1-38 Bank for International Settlements.
  6. Dibooglu, Sel & Kibritcioglu, Aykut, 2004. "Inflation, output growth, and stabilization in Turkey, 1980-2002," Journal of Economics and Business, Elsevier, vol. 56(1), pages 43-61.
  7. Alfonso Mendoza V., 2003. "The Inflation-Output Volatility Tradeoff and Exchange Rate Shocks in Mexico and Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 27-51.
  8. Cem Saatcioglu & Levent Korap, 2006. "Determinants of Turkish Inflation," Working Papers 2006/7, Turkish Economic Association.
  9. Vuslat Us & Kývýlcým Metin Ozcan, 2003. "Optimal Univariate Expectations under High and Persistent Inflation : New Evidence From Turkey," Working Papers 2003/4, Turkish Economic Association.
  10. Levent, Korap, 2006. "An empirical analysis of Turkish inflation (1988-2004): some non-monetarist estimations," MPRA Paper 19630, University Library of Munich, Germany.
  11. Aykut Kibritcioglu, 2001. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," Macroeconomics 0107002, EconWPA, revised 10 Oct 2001.
  12. Ümit Özlale & Kivilcim Metin Ozcan, 2005. "Does Time Inconsistency Problem Apply For Turkish Monetary Policy?," Working Papers 2005/2, Turkish Economic Association.

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