Real Effects of High Inflation
April 1, 2000
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Summary
This paper revisits the question of the real effects of inflation, on the basis of the experience with 23 high inflation episodes in 17 countries. It finds strong indications that inflation had contractionary effects on a number of important macroeconomic variables, such as GDP, investment and employment. Moreover, high inflation led to a significant decline in real wages, a real depreciation and an improvement in external trade. These patterns are consistent with explanations that stress the transaction role of money, such as models with a cash-in-advance constraint. However, some observations are hard to reconcile with existing theory, especially the large magnitude of the fall in real wages.1
Subject: Foreign exchange, Inflation, Labor, Labor supply, National accounts, Prices, Private consumption, Real exchange rates, Real wages
Keywords: Africa, cash-in-advance constraint, effects of inflation, Global, Inflation, inflation crisis, inflation rate, inflation time dummy, Labor supply, Peak inflation, Private consumption, real effects, Real exchange rates, real wages, superneutrality, terms of trade shock, Tobin effect, utility function, WP
Pages:
22
Volume:
2000
DOI:
Issue:
085
Series:
Working Paper No. 2000/085
Stock No:
WPIEA0852000
ISBN:
9781451850741
ISSN:
1018-5941
