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