What Happens When the Minimum Wage Rises? It Depends on Monetary Policy

Andrew Glover and Jose Mustre-del-Rio examine how monetary policy may amplify or dampen the response of employment inflation to an increase in minimum wage. Their model-based analysis suggests a wage has expansionary effects on economy if central bank is relatively unresponsive current inflation, contractionary responds more aggressively (more than one-for-one) inflation. More generally, their framework that engenders effects, can mitigate these by allowing rise nominal interest rate.