Does the Size of Second-Round Effects on Growth in Total Remuneration Per Worker Due to Exchange Rate Depreciation Shock Vary According to Inflation Regimes?
Does the size of the second-round effects on growth in total remuneration per worker due to the exchange rate depreciation shock vary according to the inflation regimes? The second-round effects are smaller or dampened when inflation expectations are in the low inflation regime while these are elevated in the high inflation regime. Evidence shows that when inflation expectations are in the low inflation regime, the repo rate tends to be at lower levels than that would prevail if second-round effects were not considered. In addition, the weakening impact of the second-round effects on the repo rate increase following an exchange rate depreciation shock is much bigger when inflation expectations coincides with consumer price inflation being below 4.5% than just below 6% threshold.
- Mishra, P., & Spilimbergo, A. (2009). Exchange rates and wages in an integrated world (IMF Working Chapter No. WP/09/44).Google Scholar