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Money, Wages and Inflation in Middle-Income Developing Countries

Author

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  • Pierre-Richard Agénor
  • Willy W. Hoffmaister

Abstract

This paper examines the short-run links between money growth, exchange rate depreciation, nominal wage growth, the output gap, and inflation in Chile, Korea, Mexico, and Turkey, using a generalized vector autoregression analysis. Nominal historical wage shocks are shown to have an important effect on movements in inflation only in Mexico. Generalized impulse response functions show that a positive historical shock to nominal wage growth generates a transitory but significant reduction in output. Inflation increases in all countries, particularly Mexico. A positive shock to nominal money growth raises real cash balances on impact and exerts an expansionary effect on output, despite an increase in real wages.

Suggested Citation

  • Pierre-Richard Agénor & Willy W. Hoffmaister, 1997. "Money, Wages and Inflation in Middle-Income Developing Countries," IMF Working Papers 97/174, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:97/174
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    Cited by:

    1. Dibooglu, Sel & Kibritcioglu, Aykut, 2004. "Inflation, output growth, and stabilization in Turkey, 1980-2002," Journal of Economics and Business, Elsevier, vol. 56(1), pages 43-61.
    2. Ümit Özlale & Kivilcim Metin Ozcan, 2005. "Does Time Inconsistency Problem Apply For Turkish Monetary Policy?," Working Papers 2005/2, Turkish Economic Association.
    3. Kibritçioğlu, Aykut, 2002. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 43-76.
    4. Levent, Korap, 2006. "An empirical analysis of Turkish inflation (1988-2004): some non-monetarist estimations," MPRA Paper 19630, University Library of Munich, Germany.
    5. M S Mohanty & Marc Klau, 2001. "What determines inflation in emerging market economies?," BIS Papers chapters,in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 1-38 Bank for International Settlements.
    6. Us, Vuslat & Ozcan, Kıvılcım Metin, 2005. "Optimal univariate expectations under high and persistent inflation: new evidence from Turkey," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 499-517.
    7. Aykut Kibritcioglu, 2004. "A Short Review of the Long History of Turkish High Inflation," Economics Bulletin, AccessEcon, vol. 28(2), pages 1.
    8. Fatma Zeren & Levent Korap, 2010. "A Cost-based Empirical Model of the Aggregate Price Determination for the Turkish Economy: A Multivariate Cointegration Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(2), pages 173-188, June.
    9. Cem Saatcioglu & Levent Korap, 2006. "Determinants of Turkish Inflation," Working Papers 2006/7, Turkish Economic Association.
    10. Frigyes F Heinz & Yan M Sun, 2014. "Sovereign CDS Spreads in Europe; The Role of Global Risk Aversion, Economic Fundamentals, Liquidity, and Spillovers," IMF Working Papers 14/17, International Monetary Fund.
    11. Grace Ofori-Abebrese & George Kwesi Walanyo Azumah & Robert Becker Pickson, 2017. "Public Sector Wage and Inflation in Ghana," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(6), pages 561-572, June.
    12. Vratislav Izak, 2001. "External Factors in Czech Disinflation (Dynamic Analysis)," Archive of Monetary Policy Division Working Papers 2001/35, Czech National Bank.
    13. Alfonso Mendoza V., 2003. "The Inflation-Output Volatility Tradeoff and Exchange Rate Shocks in Mexico and Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 27-51.

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