High Inflation and Real Wages

Author/Editor:

Benedikt Braumann

Publication Date:

May 1, 2001

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:

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.

Series:

Working Paper No. 01/50

Subject:

English

Publication Date:

May 1, 2001

ISBN/ISSN:

9781451846973/1018-5941

Stock No:

WPIEA0502001

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

24

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