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Trend Inflation, Rigidities, And Human Capital Growth

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  • Laguna, Adelaida
  • Sanso, Marcos

Abstract

A wage setting process defined in terms of wage per hour is the key factor for obtaining negative optimal trend inflation in a closed economy. However, this inflation will be zero if the process is established on the wage per unit of human capital. The origin of both results is a dynamic mechanism that, with some differences, makes possible the attainment of a situation equivalent to wage flexibility. Finally, while the effect of trend inflation on the long-run growth rate is tiny in the first case, it is much more important in the second, highlighting the relevance of this approach.

Suggested Citation

  • Laguna, Adelaida & Sanso, Marcos, 2020. "Trend Inflation, Rigidities, And Human Capital Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 24(3), pages 538-567, April.
    • Handle: RePEc:cup:macdyn:v:24:y:2020:i:3:p:538-567_2
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