Money, Wages and Inflation in Middle-Income Developing Countries

Pierre-Richard Agénor and Alexander Hoffmaister

No 1997/174, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; nominal wage; output gap; Determinants of inflation; and generalized VAR analysis; VAR model; inflation shock; VAR analysis; consumer price inflation; VAR innovation; nominal wage growth; Wages; Inflation; Real wages; Exchange rates; Wage adjustments (search for similar items in EconPapers)
Pages: 38
Date: 1997-12-01
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Citations: View citations in EconPapers (19)

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