Download

High Inflation and Real Wages

Information about Western Hemisphere Hemisferio Occidental

Explore other countries and regions »

High Inflation and Real Wages
Get Code Buy
Journal Issue
Share
Volume/Issue:
2001/50
Series:
IMF Working Papers
Author(s):
Benedikt Braumann
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
May 2001
DOI:
http://dx.doi.org/10.5089/9781451846973.001
ISBN:
9781451846973
ISSN:
1018-5941
Page:
24
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.
Share
  • ShareShare