Money, Wages and Inflation in Middle-Income Developing Countries

38 Pages Posted: 15 Feb 2006

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department

Date Written: December 1997

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: Determinants of inflation, generalized VAR analysis

JEL Classification: E24, E31, F31

Suggested Citation

Agenor, Pierre-Richard and Hoffmaister, Alexander W., Money, Wages and Inflation in Middle-Income Developing Countries (December 1997). IMF Working Paper, Vol. , pp. 1-38, 1997. Available at SSRN: https://ssrn.com/abstract=883921

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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