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.
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References listed on IDEAS
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- 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.
- Elhanan Helpman & Leonardo Leiderman, 1989.
"Real Wages, Monetary Accommodation, and Inflation,"
NBER Working Papers
3146, National Bureau of Economic Research, Inc.
- Eliana Cardoso, 1992. "Inflation and Poverty," NBER Working Papers 4006, National Bureau of Economic Research, Inc.
- Bruno, Michael & Easterly, William, 1998.
"Inflation crises and long-run growth,"
Journal of Monetary Economics,
Elsevier, vol. 41(1), pages 3-26, February.
- Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-29, December.
- Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 00/85, International Monetary Fund.
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