Money, Wages and Inflation in Middle-Income Developing Countries

Author/Editor:

Pierre-Richard Agénor ; Willy A Hoffmaister

Publication Date:

December 1, 1997

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the short-run links between money growth, exchange rate depreciation, nominal wage growth, the output gap, and inflation in Chile, Korea, Mexico, and Turkey, using a generalized vector autoregression analysis. Nominal historical wage shocks are shown to have an important effect on movements in inflation only in Mexico. Generalized impulse response functions show that a positive historical shock to nominal wage growth generates a transitory but significant reduction in output. Inflation increases in all countries, particularly Mexico. A positive shock to nominal money growth raises real cash balances on impact and exerts an expansionary effect on output, despite an increase in real wages.

Series:

Working Paper No. 1997/174

Subject:

Exchange rates Foreign exchange Inflation Labor Prices Real wages Wage adjustments Wages

English

Publication Date:

December 1, 1997

ISBN/ISSN:

9781451976991/1018-5941

Stock No:

WPIEA1741997

Pages:

38

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