Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146750
Authors: 
Bursian, Dirk
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 35/2016
Abstract: 
The legal regulations require the minimum wage in Germany to be adjusted biennially which gives rise to a policy discontinuity. From the perspective of rational expectations models, such policy features render standard local approximation techniques infeasible. The paper presents a stylised model in which negotiated wages and corporate profits are the outcome of an optimisation problem, while changes to the minimum wage are modelled by a discontinuous policy rule. Using the simple example of minimum wage setting in Germany, the paper illustrates how such models can be solved using the method of undetermined coefficients and presents selected simulation results.
Subjects: 
rational expectations model
discontinuous policy rule
method of undetermined coefficients
JEL: 
E1
E6
ISBN: 
978-3-95729-298-8
Document Type: 
Working Paper

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