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High Inflation and Real Wages

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  • Mr. Benedikt Braumann

Abstract

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.

Suggested Citation

  • Mr. Benedikt Braumann, 2001. "High Inflation and Real Wages," IMF Working Papers 2001/050, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2001/050
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    References listed on IDEAS

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    1. 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.
    2. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-1329, December.
    3. Helpman, Elhanan & Leiderman, Leonardo, 1990. "Real wages, monetary accommodation, and inflation," European Economic Review, Elsevier, vol. 34(5), pages 897-911, July.
    4. Eliana Cardoso, 1992. "Inflation and Poverty," NBER Working Papers 4006, National Bureau of Economic Research, Inc.
    5. Mr. Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 2000/085, International Monetary Fund.
    6. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
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    Cited by:

    1. Jose Saboin, 2018. "The Modern Hyperinflation Cycle: Some New Empirical Regularities," IMF Working Papers 2018/266, International Monetary Fund.
    2. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    3. Sofyan SYAHNUR & Klaus FROHBERG, 2008. "The Impact of Oil Price Behavior on the Poor in Nanggroe Aceh Darussalam Province, Indonesia," EcoMod2008 23800139, EcoMod.

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