Inflation and Wage Growth Since the Pandemic

Oscar Jorda and Fernanda Nechio

No 2022-17, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Following the worst of the COVID-19 pandemic, inflation surged to levels last seen in the 1980s. Motivated by vast differences in pandemic support across countries, we investigate the subsequent response of inflation and its feedback to wages. We exploit the differences in pandemic support to identify the effect that these programs had on inflation and the passthrough to wages. Our empirical approach focuses on a novel dynamic difference-in-differences method based on local projections. Our estimates suggest that an increase of 5 percentage points in direct transfers (relative to trend) translates into about a peak 3 percentage points boost to inflation and wage growth. Moreover, higher inflation accentuates the role of inflation expectations on wage setting dynamics.

Keywords: inflation; wages; fiscal transfers; covid19 (search for similar items in EconPapers)
JEL-codes: E01 E30 E32 E44 E47 E51 F33 F42 F44 (search for similar items in EconPapers)
Pages: 28
Date: 2023-04-01
New Economics Papers: this item is included in nep-edu, nep-mon and nep-opm
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Citations: View citations in EconPapers (3)

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DOI: 10.24148/wp2022-17

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