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Inflationary Wage Increase under Currency Substitution

February 6th, 2008 · No Comments

Author: HENG Dyna

Publication date: Unknown

Type of document: Undergraduate thesis paper

Abstract

This paper studies the effects of an inflationary wage increase for government staffs on the welfare of their own and private employees, and social welfare, with cash-in-advance constraints under currency substitution in an overlapping generation model. We show that there exists a Laffer curve relationship of seigniorage to finance such an inflationary wage increase in the long run. The inflationary wage increase has a negative effect on the welfare level of private employees, but has an ambiguous effect on that of government staffs and social welfare.

Author’s message: “I thought it would be good if other Cambodian students read [this] and give me some comments. It would be also helpful for other undergraduate who want to research on monetary policy and central banking, I guess.”

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