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High Inflation and Real Wages

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  • Benedikt Braumann

    (International Monetary Fund)

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 credit channel of monetary transmission. 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. Copyright 2004, International Monetary Fund

Suggested Citation

  • Benedikt Braumann, 2004. "High Inflation and Real Wages," IMF Staff Papers, Palgrave Macmillan, vol. 51(1), pages 1-6.
    • Handle: RePEc:pal:imfstp:v:51:y:2004:i:1:p:6
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    Citations

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    Cited by:

    1. John Anyanwu, 2013. "Working Paper 181 - Determining the Correlates of Poverty for Inclusive Growth in Africa," Working Paper Series 979, African Development Bank.
    2. Alastaire Sèna ALINSATO, 2015. "Globalization, Poverty And Role Of Infrastructures," Journal of Economics and Political Economy, KSP Journals, vol. 2(1s), pages 197-212, May.
    3. Makoto Nirei & José A. Scheinkman, 2024. "Repricing Avalanches," Journal of Political Economy, University of Chicago Press, vol. 132(4), pages 1327-1388.
    4. F. Heylen & L. Pozzi & J. Vandewege, 2004. "Inflation crises, human capital formation and growth," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/260, Ghent University, Faculty of Economics and Business Administration.
    5. Agyapomaa Gyeke-Dako & Elikplimi Komla Agbloyor & Abel Mawuko Agoba & Festus Turkson & Emmanuel Abbey, 2022. "Central Bank Independence, Inflation, and Poverty in Africa," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 21(2), pages 211-236, June.
    6. James Temitope Dada & Taiwo Akinlo, 2021. "Foreign direct investment and poverty reduction in sub-Saharan Africa: does environmental degradation matter?," Future Business Journal, Springer, vol. 7(1), pages 1-10, December.
    7. Freddy Heylen & Lorenzo Pozzi, 2007. "Crises and human capital accumulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(4), pages 1261-1285, November.
    8. Muhammad Idrees, 2017. "Poverty in Pakistan: A Region-Specific Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 22(2), pages 139-163, July-Dec.
    9. Fiaz Hussain & Shahzad Hussain & Naila Erum, 2015. "Are Defense Expenditures Pro Poor or Anti Poor in Pakistan? An Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(4), pages 875-894.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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