ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Does the Government Budget Constraint Matter?

According to Economic Survey 1999-2000, "The inadequacy of exclusive reliance on broad money growth is also reflected in the coexistence of high monetary growth and low inflation" (p 49). We proffer an explanation that runs in terms of the price-setting behaviour of workers and firms. In the framework of a simple model, decreasing wage indexation is shown to be sufficient to provide the required result.

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