NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Real Wages, Monetary Accommodation, and Inflation

Elhanan Helpman, Leonardo Leiderman

NBER Working Paper No. 3146 (Also Reprint No. r1457)
Issued in October 1990
NBER Program(s):   EFG   ME

We analyze the dynamics of inflation in an economy characterized by a forward-looking, staggered, price and wage determination process, and by monetary accommodation. In our model, inflation reconciles the conflicting claims of workers and firms. The model is capable of generating a positive association between real wages and inflation, of the type that has been observed in some high-inflation countries. It generates a price-wage spiral but does not result in inflationary inertia.

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Published: European Economic Review, Vol. 34, pp. 897-911, (1990).

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