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Real wages, monetary accommodation, and inflation

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  • Helpman, Elhanan
  • Leiderman, Leonardo

Abstract

We analyze the dynamics of inflation in an economy characterized by a forward-looking, staggered, price and wage determination process, and by monetary accommodation. In our model, inflation reconciles the conflicting claims of workers and firms. The model is capable of generating a positive association between real wages and inflation, of the type that has been observed in some high-inflation countries. It generates a price-wage spiral but does not result in inflationary inertia.
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  • Helpman, Elhanan & Leiderman, Leonardo, 1990. "Real wages, monetary accommodation, and inflation," European Economic Review, Elsevier, vol. 34(5), pages 897-911, July.
    • Handle: RePEc:eee:eecrev:v:34:y:1990:i:5:p:897-911
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    3. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 9-84, January.
    4. Olivier J. Blanchard, 1986. "The Wage Price Spiral," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 543-565.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. Rudiger Dornbusch & Mario Henrique Simonsen, 1987. "Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel," NBER Working Papers 2153, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, vol. 21(1), pages 1-32, March.
    2. Rocha, Roberto de Rezende, 1991. "Inflation and stabilization in Yugoslavia," Policy Research Working Paper Series 752, The World Bank.
    3. Marika Karanassou & Hector Sala, 2012. "Productivity Growth And The Phillips Curve: A Reassessment Of The Us Experience," Bulletin of Economic Research, Wiley Blackwell, vol. 64(3), pages 344-366, July.
    4. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2008. "Long-run inflation-unemployment dynamics: The Spanish Phillips curve and economic policy," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 279-300.
    5. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    6. Marika Karanassou & Dennis J. Snower, 2007. "Inflation Persistence and the Phillips Curve Revisited," Working Papers 586, Queen Mary University of London, School of Economics and Finance.
    7. Mr. Benedikt Braumann, 2001. "High Inflation and Real Wages," IMF Working Papers 2001/050, International Monetary Fund.
    8. ROBERTO DE REZENDE Rocha, 1992. "Inflation And Stabilization In Yugoslavia," Contemporary Economic Policy, Western Economic Association International, vol. 10(4), pages 21-38, October.
    9. Snower, Dennis & Karanassou, Marika & Sala, Hector, 2003. "The European Phillips Curve: Does the NAIRU Exist?," CEPR Discussion Papers 4102, C.E.P.R. Discussion Papers.
    10. Steinar Holden, 2005. "Wage Formation under Low Inflation," Springer Books, in: Hannu Piekkola & Kenneth Snellman (ed.), Collective Bargaining and Wage Formation, pages 39-57, Springer.
    11. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, vol. 21(1), pages 1-32, March.
    12. Karanassou, Marika & Snower, Dennis J., 2007. "Inflation Persistence and the Phillips Curve Revisited," IZA Discussion Papers 2600, Institute of Labor Economics (IZA).
    13. Karanassou, Marika & Snower, Dennis J., 2007. "Inflation persistence and the Philips curve revisited," Kiel Working Papers 1349, Kiel Institute for the World Economy (IfW Kiel).
    14. José De Gregorio, 1991. "Indexación versus Credibilidad en un Programa de Estabilización: La Experiencia Chilena a Mediados de los 70," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 28(83), pages 189-199.

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