Wages, Exchange Rates, and the Great Inflation Moderation: A Post-Keynesian View

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Nathaniel Cline University of Redlands March 2013The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals.Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad. ABSTRACTSeveral explanations of the "great inflation moderation" have been put forth, the most popular being that inflation was tamed due to good monetary policy, good luck (exogenous shocks such as oil prices), or structural changes such as inventory management techniques.Drawing from Post-Keynesian and structuralist theories of inflation, this paper uses a vector autoregression with a Post-Keynesian identification strategy to show that the decline in the inflation rate and inflation volatility was due primarily to (1) wage declines and (2) falling import prices caused by international competition and exchange rate effects. The paper uses a graphical analysis, impulse response functions, and variance decompositions to support the argument that the decline in inflation has in fact been a "wage and import price moderation," brought about by declining union membership and international competition. Exchange rate effects have lowered inflation through cheaper import and oil prices, and have indirectly affected wages through strong dollar policy, which has lowered manufacturing wages due to increased competition. A "Taylor rule" differential variable was also used to test the "good policy" hypothesis. The results show that the Taylor rule differential has a smaller effect on inflation, controlling for other factors.

The Interaction between Public Sector Wage, Inflation and Exchange Rate Volatility in Ghana

“…It must be concluded that increased public wage bill in terms of GDP induces a decrease in exchange rate depreciation in Ghana and has a more significant long run negative effect. In the words of Keynes [29], Agénor and Hoffmaister [32], Mihaljek and Saxena [33], and Perry and Cline [6], inflation is the result of cost pressure emanating from wages. It must be reasoned from this that the negative impact of inflation on the value of the cedi influences the relationship between public wage bill and exchange rate depreciation in the long run.…”

“…Drawing from Post-Keynesian and Structuralist inflation theories, the fall in inflation rate was primarily as a result of wage declines, fall in prices of products produced by international competition and impacts of the exchange rate [6]. Hence, inflation is the outcome of cost pressures coming from wages, prices of commodities, the real exchange rate and the resistance of wage to previous inflation.…”

Inflation regimes and hyperinflation: a Post-Keynesian/structuralist typology

“…This basic equation is fundamental for our reasoning and to propose our equations describing what we call the low inflation regime. In the low inflation regime, the inflation rate is mainly due to conflicting claims between wage earners and capitalists over output (Perry and Cline, 2013); in other words, the conflict (and its resolution) between workers and capitalists over the distribution of revenue induces inflation dynamics and determines the distribution of income. In any case, it does not mean that inflation is exclusively due to the distribution conflict as we will explain later.…”

Faktor-Faktor Yang Memengaruhi Inflasi Inti Di Indonesia

“…Hasil penelitian ini sesuai dengan studi yang dilakukan oleh Perry & Cline (2013), dan Afandi (2015), yang menyatakan bahwa harga BBM merupakan variabel utama dalam kegiatan produksi dan distribusi (cost-push inflation).…”