The Effect of Inflation on Wage Inequality: A North–South Monetary Model of Endogenous Growth with International Trade

Abstract

This study analyzes the e ects of in ation on intra- and inter-county wage inequality, specialization, and growth, using a North-South endogenous growth model with international trade and money. The relationship between in ation and intra-country wage inequality de- pends on rms' credit constraints and on the in ation levels. Our results indicate that in a- tion decreases specialization in skilled-production and increases intra-country wage inequality. Moreover, increasing in ation in the South increases the wage inequality gap between coun- tries. Theoretical results are con rmed through calibration and match with existing empirical evidence.