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Real wages, monetary accommodation, and inflation

  • Helpman, Elhanan
  • Leiderman, Leonardo

We analyze the dynamics of inflation in an economy characterized by a forward-looking, staggered, price and wage determination process, and by monetary accommodation. In our model, inflation reconciles the conflicting claims of workers and firms. The model is capable of generating a positive association between real wages and inflation, of the type that has been observed in some high-inflation countries. It generates a price-wage spiral but does not result in inflationary inertia.

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File URL: http://www.sciencedirect.com/science/article/B6V64-45CX02V-2J/2/3c5f79ce4b3cdb18094d202fefffe623
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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 34 (1990)
Issue (Month): 5 (July)
Pages: 897-911

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Handle: RePEc:eee:eecrev:v:34:y:1990:i:5:p:897-911
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  1. repec:nbr:nberre:0126 is not listed on IDEAS
  2. Olivier J. Blanchard, 1985. "The Wage Price Spiral," NBER Working Papers 1771, National Bureau of Economic Research, Inc.
  3. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 9-84, January.
  4. Rudiger Dornbusch & Mario Henrique Simonsen, 1987. "Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel," NBER Working Papers 2153, National Bureau of Economic Research, Inc.
  5. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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