In the face of declining prices, wage rigidities shift the burden of adjustment onto the scale of employment, as firms attempt to recover mark-ups which are being eroded by high labour costs measured in inflation-adjusted terms.
In some advanced economies in Europe and North America, it could be the case that the fluctuations in economic activity would vary the size of an output gap, creating pressure up or down on inflation while  2  See Fujiki, Hirakata and Shioji [2012].