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High Inflation and Real Wages
Author:
Mr. Benedikt Braumann
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Series:
IMF Working Papers
Volume/Issue:
Volume 2001: Issue 050
Language:
English
Publication Date:
01 May 2001
DOI:
https://doi.org/10.5089/9781451846973.001
ISBN:
9781451846973
ISSN:
1018-5941
Pages:
24
Keywords:
WP; consumer goods; excess supply; Inflation; real wages; poverty; Heckscher-Ohlin; cash-in-advance; inflation crisis; inflation increase; factor price; investment goods; price effect; inflation broken line; Consumption
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund