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Nominal wages are still growing sluggishly, however.
And nominal wages are downwardly rigid.
A dollar's worth of nominal wages does not buy as much when prices rise.
The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages.
Worries hang over the domestic economy: nominal wages fell by 3.2% year-on-year in June.
"Nominal wages have been growing at only about 2% per year since 2015.
Growth in nominal wages has failed to keep up with the rise in prices.
Nominal wages rose significantly faster than in the rest of the zone.
That, coupled with rigid labour markets in some places, led to sharp rises in nominal wages.
And inflation eases economic adjustments by allowing companies to cut real wages without cutting nominal wages.
As Ryan Avent says, it would amount to demanding a squeeze that pushes down nominal wages.
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