The paper of the thesis studies the effects of inflation and wage indexation on the short run savings behavior of household units. It sets an intertemporal utility optimization framework where individuals face high inflation and a system of wage indexation that restores real earnings values in fixed time intervals. Since no borrowing is allowed, the interaction between the declining path of real earnings between wage adjustments and a standard consumption smoothing process generates a high frequency savings stock.

The paper gives a first step toward developing a methodology to quantify the effects of inflation and government regulation on short-run earnings dynamics. It also provides evidence on the patterns of wage adjustment adopted during the recent Brazilian experience.