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High Inflation and Real Wages

Author

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  • Mr. Benedikt Braumann

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.

Suggested Citation

  • Mr. Benedikt Braumann, 2001. "High Inflation and Real Wages," IMF Working Papers 2001/050, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2001/050
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    References listed on IDEAS

    as
    1. Eliana Cardoso, 1992. "Inflation and Poverty," NBER Working Papers 4006, National Bureau of Economic Research, Inc.
    2. Mr. Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 2000/085, International Monetary Fund.
    3. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    4. Alan C. Stockman, 1985. "Effects of Inflation on the Pattern of International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 587-601, August.
    5. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-1329, December.
    6. Helpman, Elhanan & Leiderman, Leonardo, 1990. "Real wages, monetary accommodation, and inflation," European Economic Review, Elsevier, vol. 34(5), pages 897-911, July.
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    Cited by:

    1. Jose Saboin, 2018. "The Modern Hyperinflation Cycle: Some New Empirical Regularities," IMF Working Papers 2018/266, International Monetary Fund.
    2. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    3. Sofyan SYAHNUR & Klaus FROHBERG, 2008. "The Impact of Oil Price Behavior on the Poor in Nanggroe Aceh Darussalam Province, Indonesia," EcoMod2008 23800139, EcoMod.

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