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TREND INFLATION, RIGIDITIES, AND HUMAN CAPITAL GROWTH

Published online by Cambridge University Press:  02 August 2018

Adelaida Laguna  and
Marcos Sanso
Adelaida Laguna
Affiliation:
University of Zaragoza
Marcos Sanso*
Affiliation:
University of Zaragoza
*
Address correspondence to: Marcos Sanso, Department of Economic Analysis, Gran Vía 2, 50008 Zaragoza, Spain; e-mail: [email protected].
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Abstract

A wage setting process defined in terms of wage per hour is the key factor for obtaining negative optimal trend inflation in a closed economy. However, this inflation will be zero if the process is established on the wage per unit of human capital. The origin of both results is a dynamic mechanism that, with some differences, makes possible the attainment of a situation equivalent to wage flexibility. Finally, while the effect of trend inflation on the long-run growth rate is tiny in the first case, it is much more important in the second, highlighting the relevance of this approach.

Keywords

Nominal RigidityTrend InflationLong-Term GrowthStaggered Price Setting
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 3 , April 2020 , pp. 538 - 567
Copyright
© Cambridge University Press 2018

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