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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


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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