High Inflation and Real Wages
Empirical data show that real wages fall sharply during periods of high inflation. This paper suggests a simple general equilibrium explanation, without relying on nominal rigidities. It presents an intertemporal two-sector model with a cash-in-advance constraint. In this setting, inflation reduces real wages through (1) a decline of the capital stock, and (2) a shift in relative prices. The two effects are additive and make the decline in real wages exceed the decline in per-capita GDP. This mechanism may contribute to rising poverty during periods of high inflation.
|Date of creation:||01 May 2001|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bruno, Michael & Easterly, William, 1998.
"Inflation crises and long-run growth,"
Journal of Monetary Economics,
Elsevier, vol. 41(1), pages 3-26, February.
- Alan C. Stockman, 1981.
"Effects of Inflation on the Pattern of International Trade,"
NBER Working Papers
0713, National Bureau of Economic Research, Inc.
- Alan C. Stockman, 1985. "Effects of Inflation on the Pattern of International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 587-601, August.
- Eliana Cardoso, 1992. "Inflation and Poverty," NBER Working Papers 4006, National Bureau of Economic Research, Inc.
- Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 00/85, .
- Helpman, Elhanan & Leiderman, Leonardo, 1990.
"Real wages, monetary accommodation, and inflation,"
European Economic Review,
Elsevier, vol. 34(5), pages 897-911, July.
- Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-1329, December.
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:01/50. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow)or (Hassan Zaidi)
If references are entirely missing, you can add them using this form.