Wage Rigidity, Exchange Rate Regimes, and Inflation Persistence in Transition Economies: A Cohort-Based Institutional Approach

URL SCAN: arXiv > Wage Rigidity, Exchange Rate Regimes, and Inflation Persistence in Transition Economies: A Cohort-Based Institutional Approach
FIRST LINE: [Submitted on 16 May 2026]

THE DISSECTION

A technically competent piece of mainstream macroeconomic empirics. Dynamic panel GMM, institutional indices constructed via AI-assisted legal text coding, cohort-based identification, simulation-based sensitivity analysis. The paper asks: how do formal institutional rigidities (wage-setting mechanisms, exchange rate pegs) condition the persistence of inflation in transition economies?

The answer it produces is internally consistent: institutional constraints dampen inflation pass-through, meaning rigid wages and fixed exchange rates act as nominal anchors that weaken the transmission of past inflation into current price dynamics. The exchange rate channel is robust; the wage rigidity channel is fragile to measurement assumptions.

The paper is functioning as: Prestige-signaling institutionalist empirics. It speaks to a narrow audience of macroeconomists interested in nominal rigidities and transition economy dynamics. It is methodologically careful, peer-reviewable, and will be cited primarily by other papers asking the same category of question within the same analytical paradigm.

THE CORE FALLACY

The paper is documenting the vital signs of a patient that may not have a future.

The entire research program assumes the continuity of the post-WWII macroeconomic architecture: labor markets with sufficient mass employment to generate meaningful wage-price dynamics, exchange rate regimes operating within an international monetary system where such regimes are meaningful, inflation processes rooted in demand-supply mechanics that assume productive labor as the central economic mechanism.

Under the Discontinuity Thesis, this is precisely the architecture that terminates. When AI severs the mass employment -> wage -> consumption circuit, the institutional variables this paper treats as structural parameters become contextual variables in a system that no longer operates on those terms.

Wage rigidity matters for inflation dynamics when wages are the primary mechanism of income distribution and consumption financing. The paper treats this as given. It is not given. It is the very thing being dissolved.

The paper's core fallacy is treating the dying patient's vital signs as evidence of robust health — a diagnostic error that would be merely academic if the paper weren't also informing policy prescriptions that assume the system being studied will continue to exist.

HIDDEN ASSUMPTIONS

1. Mass employment is structurally durable. The paper treats labor market institutions as persistent features shaping macroeconomic outcomes. Under DT, mass employment is a temporary structural condition, not a permanent feature of the economic landscape.

2. Inflation persistence is a policy-relevant problem. The paper assumes that understanding and managing inflation persistence is a meaningful policy objective. As productive participation collapses, the inflation question shifts — or becomes irrelevant relative to distribution crises, sovereign debt dynamics, and the political economy of transition.

3. Transition economies follow a convergence path. The paper studies transition economies (2013-2024 data) as economies converging toward some stable institutional equilibrium. The DT lens suggests these economies may be transitioning away from the system the paper assumes they are entering.

4. AI-assisted legal text coding is a methodological sophistication. The paper proudly announces AI-assisted construction of institutional indices. In the DT frame, this is not a methodological advance — it is the mechanism of its own obsolescence. AI is both the research tool and the force dissolving the labor market institutions being studied.

SOCIAL FUNCTION

Prestige signaling within institutionalist economics. The paper performs technical competence within an established research paradigm. It generates publishable output,学术引用, and career capital within a disciplinary community that is, by and large, not asking whether its foundational assumptions survive the next 20 years.

Ideological anesthetic. By treating formal institutional structures as the key explanatory variables, the paper deflects attention from the structural economic forces that will overwhelm institutional variation. The policy implication — that countries can choose institutional configurations to manage inflation — is a reformist fantasy within a system operating under mathematical constraint.

THE VERDICT

The paper is a forensic examination of nominal rigidities in economies whose fundamental structure is dissolving. Its empirical findings may be accurate within the dataset's scope. They describe the past with precision and the future with irrelevance.

The exchange rate regime finding — that rigid pegs dampen inflation persistence, robustly — is interesting macroeconomic mechanics. It does not address what happens to exchange rate regimes when the productive economy generating export revenues, tax bases, and sovereign debt capacity is automated out from underneath them.

This is economics as autopsies of futures that will not arrive. The methodology is sound. The question is terminal.

Survival relevance: Fragile (1yr), Terminal thereafter. The institutionalist research program has a decade of publishing runway before its foundational assumptions are visibly, undeniably falsified. After that, it joins the library of things that were true until they weren't.