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- Monetary and Macroprudential Policy Rules in a Model with House Price Booms by Kannan, Prakash/ Rabanal, Pau and Scott, Alasdair M.
- Is Discretionary Fiscal Policy in Japan Effective? by Rafiq, Sohrab
- In search of lost time: the neoclassical synthesis by De Vroey, Michel and Duarte, Pedro Garcia
Does Inflation Grease the Wheels of the Labor Market?
1University of California, Los Angeles, email@example.com
2Research Department, Inter-American Development Bank, firstname.lastname@example.org
Citation Information: Contributions in Macroeconomics. Volume 6, Issue 1, Pages –, ISSN (Online) 1534-6005, DOI: 10.2202/1534-6005.1450, October 2006
- Published Online:
Inflation can grease the wheels of the labor market by relaxing downward wage rigidity but it can also increase uncertainty and have a negative sand effect. This paper studies the grease effect of inflation by looking at whether the interaction between inflation and labor market regulations affects how employment responds to changes in output. The results show that in industrial countries with highly regulated labor markets, the grease effect of inflation dominates the sand effect. In the case of developing countries, we rarely find a significant effect of inflation or labor market regulations and provide evidence indicating that this could be due to the presence of a large informal sector and limited enforcement of de jure labor market regulations.