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Real Effects of High Inflation


  • Benedikt Braumann


This paper revisits the question of the real effects of inflation, on the basis of the experience with 23 high inflation episodes in 17 countries. It finds strong indications that inflation had contractionary effects on a number of important macroeconomic variables, such as GDP, investment and employment. Moreover, high inflation led to a significant decline in real wages, a real depreciation and an improvement in external trade. These patterns are consistent with explanations that stress the transaction role of money, such as models with a cash-in-advance constraint. However, some observations are hard to reconcile with existing theory, especially the large magnitude of the fall in real wages.1

Suggested Citation

  • Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 00/85, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/85

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    References listed on IDEAS

    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
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    3. Jeffrey A. Frankel, 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Chapters,in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 53-88 National Bureau of Economic Research, Inc.
    4. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    5. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    6. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
    7. Benassy-Quere, Agnes, 1999. "Optimal Pegs for East Asian Currencies," Journal of the Japanese and International Economies, Elsevier, vol. 13(1), pages 44-60, March.
    8. Kwan, C. H., 1998. "The theory of optimum currency areas and the possibility of forming a yen bloc in Asia," Journal of Asian Economics, Elsevier, vol. 9(4), pages 555-580.
    9. Peter B. Clark & Shang-Jin Wei & Natalia T. Tamirisa & Azim M Sadikov & Li Zeng, 2004. "A New Look at Exchange Rate Volatility and Trade Flows," IMF Occasional Papers 235, International Monetary Fund.
    10. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters,in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
    11. Chow, Hwee Kwan & Kim, Yoonbai, 2003. "A common currency peg in East Asia? Perspectives from Western Europe," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 331-350, September.
    12. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
    13. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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    Cited by:

    1. Jens R Clausen & Sharmini Coorey & Bakar Ould-Abdallah & Sònia Muñoz & Norbert Funke, 2007. "Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe," IMF Working Papers 07/99, International Monetary Fund.
    2. Shaw, Ming-Fu & Lai, Ching-Chong & Chang, Wen-Ya, 2005. "Anticipated policy and endogenous growth in a small open monetary economy," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 719-743, September.
    3. Wojciech Charemza & Svetlana Makarova & Imran Shah, 2013. "Frequent episoded of high inflation and real effects," EcoMod2013 5478, EcoMod.
    4. Diego Nicolás Moccero, 2001. "Esquemas Cambiarios y Monetarios Alternativos en un Modelo de Interdependencia Macroeconómica entre Argentina y Brasil," Department of Economics, Working Papers 031, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    5. F. Heylen & L. Pozzi & J. Vandewege, 2004. "Inflation crises, human capital formation and growth," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/260, Ghent University, Faculty of Economics and Business Administration.
    6. Benedikt Braumann, 2001. "High Inflation and Real Wages," IMF Working Papers 01/50, International Monetary Fund.


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