Inflation, wages and devaluation

• Autor(a) principal: Mateus, Abel
• Data de Publicação: 1980
• Tipo de documento: Artigo
• Idioma: por
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: https://doi.org/10.34632/economia.1980.16881

The current theories of inflation aim, to a certain extent, to the integration of the cost-push, aggregate excess demand, and inflationary expectation approaches. Starting with a theory of the firm in a monopolistic competition market and confronting an incertain demand, Barro, Iwai, Mortensen, Bruno and others have built the microfoundations of the Phillips curve. However, Mortensen built the Phillips curve from the labor supply side, a well-known «search unemployment» model, and Iwai and Bruno were able to get the inflation-unemployment trade-off from the output market. In this paper we build an integrated model of the Phillips curve, considering at the same time the labor and the output markets. Moreover, Iwai does not consider inflationary expectations, which are extremely important empirically: but is able to rationalize the so called «Keynesian unemployment». In our model, all these factors are integrated in a most natural way, and through aggregation, we build the macroeconomic model for the price bloc. We apply this model to the Portuguese economy and the results are most encouraging. They show the central role played by «inflationary expectations», and a weak and much-delayed effect of the «aggregate demand pressure» variable. The elasticity of the rate of inflation relating to import prices is fairly high, and at the present time, with a heavy external deficit, the rate of inflation depends strongly on the rate of devaluation, required for a balance of payments adjustment. We were able to quantify the short-run inflationary impact of a devaluation. Over the long, run, our results show that a one-shot devaluation does not have real effects. Thus, a continuous devaluation is required for a policy of reequilibrium in the balance of payments. This justifies a «crawling-peg» policy. We were able to detect that devaluation policy influences «inflationary expectations», and that wages adjust to prices in a one to two years lag.