High Inflation and Real Wages [electronic resource] / Benedikt Braumann.
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TextSeries: IMF Working Papers; Working Paper ; No. 01/50Publication details: Washington, D.C. : International Monetary Fund, 2001Description: 1 online resource (24 p.)ISBN: 1451846975 :ISSN: 1018-5941Subject(s): Cash-In-Advance | Financial Markets and the Macroeconomy | Heckscher-Ohlin | High Inflation | Relative Price | Relative Prices | Argentina | Brazil | Mexico | Peru | SurinameAdditional physical formats: Print Version:: High Inflation and Real WagesOnline resources: IMF e-Library | IMF Book Store 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.
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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