Working Paper: CEPR ID: DP925
Authors: Roel M. W. J. Beetsma; Frederick van der Ploeg
Abstract: The distributional effects of the minimum wage are analysed in a model where skilled and unskilled labour enter the production function. It is argued that distributional goals are best achieved by letting the labour market clear and achieving redistribution through taxes and transfers.
Keywords: exchange rate bands; multiple shocks; stabilization; monetary accommodation; intramarginal intervention; wage and price sluggishness; unrestricted dirty float; exchange rate peg; PPP exchange rate rule; Ornstein-Uhlenbeck process; stochastic simulation
JEL Codes: E0; F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Money Demand Shock (E41) | Fixed Exchange Rate (Peg) is Optimal (F31) |
| Fixed Exchange Rate (Peg) allows for compensation of changes in money demand (F31) | Output and Price Stability (E31) |
| Goods Demand Shock (D12) | Nominal Income Target is Optimal (E19) |
| Nominal Income Target involves Monetary Contraction (E52) | Counteract Increased Domestic Output Demand (E23) |
| Supply Shock (E31) | Optimal Degree of Monetary Accommodation Increases with Weight on Output Stability (E52) |
| Prioritizing Output Stability (C69) | More Accommodative Monetary Policies in Response to Supply Shocks (E52) |
| Exchange Rate Bands induce Welfare Losses under Goods Demand and Supply Shocks (F31) | Necessity of Switching to a Peg is Suboptimal (D59) |
| Money Demand Shock (E41) | No Welfare Loss under a Band (D69) |