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Monetary Policy Effects in Developing Countries with Minimum Wages

Discussion Papers

No.142

by KODAMA Masahiro
March 2008

ABSTRACT

Using a Dynamic General Equilibrium (DGE) model, this study examines the effects of monetary policy in economies where minimum wages are bound. The findings show that the monetary-policy effect on a binding-minimum-wage economy is relatively small and quite persistent. This result suggests that these two characteristics of monetary policy in the minimum-wage model are rather different from those in the union-negotiation model which is often assumed to account for industrial economies.

Keywords: monetary policy, sticky wage, business cycles,developing countries
JEL classification: E52, J3, E32, O11

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