Jobless Recoveries During Financial Crises: Is Inflation the Way Out? / Guillermo Calvo, Fabrizio Coricelli, Pablo Ottonello.

Format:

Book

Author/Creator:

Calvo, Guillermo.

Contributor:

National Bureau of Economic Research.

Coricelli, Fabrizio.

Ottonello, Pablo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19683.

NBER working paper series no. w19683

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Jobless Recoveries During Financial Crises

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

This paper discusses three policy tools to mitigate jobless recoveries during financial crises: inflation, real currency depreciation, and credit-recovery policies. Using a sample of financial crises in Emerging Market economies, we document that large inflationary spikes appear to help unemployment to get back to pre-crisis levels. However, the counterpart of inflation is sizably lower real wages. Hence, inflation does not prevent wage earners as a whole from getting hit by financial crises. Interestingly, neither the change in the real exchange rate nor the change in output composition (tradables/nontradables), from output peak to recovery point, displays a statistically significant relationship with inflation or jobless recovery. This suggests that currency depreciation can help reduce unemployment only insofar as it is associated with inflation, and that jobless recovery is likely due to nominal wage rigidity. The paper also shows that measures to reactivate credit flows could be beneficial to wage earners as a whole, as measured by the real wage bill.

Notes:

Print version record

November 2013.