Search

Copyright of Journal of Economic Policy Researches / İktisat Politikası Araştırmaları Dergisi is the property of Journal of Economic Policy Researches / Iktisat Politikasi Arastirmalari Dergisi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

In the paper we show that common currency areas tend to amplify the inefficiencies associated with lack of credibility of monetary policy. Lack of commitment in redistribution of seigniorage leads to excessive inflation and suboptimal taxation in the Monetary Union. Lack of commitment to inflation creates multiple inefficient equilibria that do not exist in a regime of national monetary independence. [ABSTRACT FROM AUTHOR]

The article presents an analysis of the multiple reserve requirement scheme of central banking and national fiscal and monetary policy. The traditional monetary concerns of small open economies are described, focusing on managing inflation while still financing the public deficit, usually through required bank reserve levels. The alternative method of multiple reserve requirements for differing currencies, cash and government securities, is formally outlined. Impacts of this scheme on inflation, seigniorage, and welfare are explored.

The article presents an analysis of the economic conditions of Argentina between the 1970s and 1990s in order to explore the connections between seigniorage and inflation effects. Econometric models providing a Laffer curve between the two elements are described. Three separate theories explaining the high inflation in relation to this curve are given and analyzed through the case of Argentina, questioning whether the inflation rate was above the revenue-maximizing rate. Additional elements explored include monetary/exchange rate paradigms and money demand.

The article analyzes the impact of money demand and seigniorage on high inflation phenomena. A model incorporating the three macroeconomic elements is developed through an optimizing consumer-investor-portfolio allocator with cash-in-advance constraints. It also presents both individual-country and combined cross-country time-series evidence that supports the notion that the semi-elasticity of money demand with respect to inflation varies with inflation itself. Empirical evidence from high-inflation countries during the 1960-1990 is also used to provide estimates of the seigniorage-maximizing inflation rate.

The article comments on "Seigniorage As a Tax: A Quantitative Evaluation," by Ayse Imrohoroglu and Edward C. Prescott, which reported on simulation experiments concerning financial intermediation and interest-bearing and noninterest-bearing assets. The issue is the validity of their model for determining the costs of inflation. "Indexation and Discretionary Monetary Policy," a paper written by this article's author and Larry Ball, is discussed, as well as a staggered contract model for estimating wage and price variability during inflationary periods. The use of cash to smooth consumption and the inflation tax relative to the U.S. gross national product are mentioned.

The article evaluates seigniorage as a tax via a general equilibrium model, the efficacy of seigniorage relative to an income tax, and tax-monetary arrangements in the United States. Three sets of experiments are discussed which relate to interest payments on deposit accounts. The consumption smoothing role of liquid assets, inflation rate volatility, uncertainty in monetary policy, and the welfare cost of inflation are examined in mathematical models to determine after-tax real returns on assets. Data is given for economies with intermediation and inflation rates at three percent and six percent and for average real returns on Treasury Bills and savings accounts before and after taxation.

Zimbabwe experienced record hyperinflation of 80 billion per cent per month in 2008. This article uses new data from Zimbabwe to investigate money demand under hyperinflation using an autoregressive distributed-lag model for the period 1980–2008. The results produce plausible convergence rates and long-run elasticities, indicating that real-money balances are cointegrated with the inflation rate and signifying an equilibrium relationship between the two series. Evidence is also presented suggesting prices were driven by increases in the money supply rather than by changes in price setting behaviour. The article uses the estimated elasticity on the inflation variable to calculate the maximum level of seigniorage revenue that could be raised in the economy. Actual seigniorage levels increased dramatically after 2000, with inflation eventually exceeding the rate required to maximize this revenue stream. This is discussed in relation to international financing constraints and the collapse of the domestic tax base. [ABSTRACT FROM PUBLISHER]

This article describes the apocryphal nature of the official indicators of inflation and the indexation of the incomes of the population, and determines prescriptions for minimizing inflation. [ABSTRACT FROM AUTHOR]

The article focuses on the relationship between inflation rate and tax rate in the U.S. The article cites the work of economists James M. Poterba and Julio J. Rotemberg, who considered a framework in which government concerns with minimizing the deadweight loss of tax collection yields a suggested positive relationship between the inflation rate and the tax rate. In other words, as government spending rises, optimal financing would require raising both tax rates and seignorage so as to equalize the deadweight loss of the marginal dollar earned across the two alterative revenue-generating sources.

This paper analyzes the relationship between corruption and inflation for a sample of 100 developing and developed countries representing five regions (Americas, Europe, Middle East and North Africa, Sub-Saharan Africa and Asia Pacific) over the period 2000-2012. Various model estimations are carried out using alternative techniques and two indicators of corruption. Our findings provide evidence of a significant and positive relationship between all country corruption measures and inflation. Countries with a corrupted environment and bad governance use seigniorage as a source of revenue which induces higher monetary expansion and therefore higher inflation rates. After controlling for money supply, our results suggest that corruption is affecting inflation via other channels. Our results show also that the negative effect of corruption on inflation is different across subsample countries. The lack of sound and committed institutions in developing and emerging is a key point in explaining these disparities. [ABSTRACT FROM AUTHOR]

There is convincing empirical evidence in cross-section data of a positive correlation between the level of corruption and the rate of inflation. This paper explores whether this correlation can be a consequence of a government exploiting seigniorage to compensate for revenue lost to corruption. We embed corruption within an overlapping generations economy that has money as the only store of value and in which the government optimizes the rate of monetary growth. Three different forms of corruption are modeled, and it is shown that all three can be positively correlated with increased inflation. [ABSTRACT FROM AUTHOR]

Abstract: Should inflation be thought of as “just another tax?” The theoretical basis for doing so dates back to Phelps (1973) and has been greatly refined ever since. Since optimal taxation minimizes the deadweight loss by equalizing the marginal distortions of all available taxes, including the inflation tax, a key distinctive theoretical implication obtained by these models is that inflation and tax rates have a positive relationship. While theoretically appealing, empirical studies find virtually no support for this key implication. We show that, considering the role of central bank independence (CBI), it is possible to reconcile the main theoretical implications of models of optimal taxation and seigniorage with the empirical evidence. Different degrees of CBI capture the extent to which monetary policy is effectively controlled by the fiscal authority. Our model generates three testable implications: i) if CBI is low, the optimal relationship between inflation and tax rates is positive, ii) such relationship is a decreasing function of the degree of CBI, and iii) the relationship is negative for high levels of CBI. We show that these hypotheses hold for alternative measures of tax policy, seigniorage, and CBI as well as after controlling for several macroeconomic performance, ideology, political instability, governance, and economic structural/development factors. [Copyright &y& Elsevier]

We adapt the monetary model (Sidrauski 1967) to study the hypothesis of anticipation of future consumption. We assume that anticipation of future consumption affects an agent's instantaneous utility and that all effects of future consumption on current well-being are captured by the stock of future consumption. Monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate (and thus the Friedman rule) is destabilizing. Given this, we can derive a 'just stable' equilibrium nominal interest rate with matching definitions for inflation and monetary growth. We demonstrate that these implied lower bounds match their historical analogues well. [ABSTRACT FROM AUTHOR]

In developing countries, governments are tempted to, and they often do finance their budget deficits by issuing currency. This leads to inflation, and ultimately, the source of the incomes to the budget are the inflation tax and the seigniorage. The mechanism that is used is the direct loan, from the Treasury (the Government's cash desk) from the central bank, which means creating a an additional monetary base. Basically, seigniorage is not different from the financing of the budget deficit, by the central bank, by buying government bonds, and the effect of this practice is the emergence if the phenomenon of taxing inflation, by deteriorating the value of the financial assets owned by banks and non-banks. This paper is structured as follows: conceptual aspects concerning the seigniorage in section 1, section 2 showing the models for calculate the level of seigniorage, section 3 estimates the evolution of Seigniorage during the crisis. [ABSTRACT FROM AUTHOR]

Although high inflation is associated with the spread of paper monies, rapid price increases are well known under the metallic standard from several countries, caused by the debasement of coins. The exact mechanism is still a puzzle. If agents were rational, why did they accept inferior coins at par with better ones? This paper compares five debasement cycles that occurred in Sweden-Finland 1350-1594. During the initial phase of such cycles coins tended to circulate by-tale, while by-weight circulation was most common towards the end of the cycles. A premium on the heavier coins implied that they were not driven out of circulation. The seignorage rate was significant during the initial phases of the cycles, while it decreased when prices and exchange rates adjusted in response to the debasement, prompting a recoinage, when the monetary unit was strengthened. It is this shift from by-tale to by-weight circulation that explains the high inflation rates that could occur before the rise of paper money. [ABSTRACT FROM AUTHOR]

This paper investigates the inflationary effect of central government deficit. While the answer from conventional economic theory and monetary authorities emphases on the strong connection that characterize these two variables there has been controversial empirical evidence in measuring the strength and significance of the relationship: inflation-government deficit. In particular we investigate the causality between government deficit and inflation in the Romanian post-socialist economy (1997-2007) using a VECM model in which inflation is non-linearly related to fiscal deficit through narrow money and M1. Our purpose is to estimate this relationship as an intrinsically dynamic one using the conceptualization proposed by Terrones and Catao (2005). The focus is on the weak form of the Fiscal Theory of Price (FTP) which is closely related to the quantitative money theory that connects inflation with money. The econometrical results conclude that for the period considered the relationship deficit/GDP-inflation is statistically significant, improvement in the deficit/GDP ratio generating a smaller inflation. This connection suggests future policy implication that can be of success in the process of price stabilization. [ABSTRACT FROM AUTHOR]

What is the seigniorage-maximizing level of inflation? Three models' formulae for the seigniorage-maximizing inflation rate (SMIR) are compared. A sticky-price model prescribes a somewhat lower SMIR to Cagan's formula and a variant of a flex-price model due to Kimbrough (2006) . The models differ markedly in how inflation distorts the labor market: The sticky-price (Calvo) model implies that inflation and output are negatively related and that output is falling in price stickiness. Interestingly, if our version of the Calvo model is to be believed, the level of inflation experienced recently in advanced economies such as the United States and the United Kingdom may be quite close to the SMIR. [ABSTRACT FROM AUTHOR]

This paper determines the conditions required for fiscal contractions to be expansionary when government spending is financed by money seigniorage. It shows that the expansionary effects of permanent fiscal contractions are dependent on the initial rates of inflation prevailing in the economy and that the set of initial inflation rates under which fiscal contractions are expansionary is affected by the degree of substitutability between public and private consumption. Starting from the benchmark case where public and private consumption are independent, introducing complementarity between public and private consumption gives rise to a weaker set of conditions for fiscal contractions to be expansionary. This implies that economies that print money to finance government spending complementary with private consumption are more likely to experience expansions if they pursue fiscal contractions. [ABSTRACT FROM AUTHOR]

Realizing the inflationary potential of money creation, by the mid-1990s, most Central European countries had switched to market instrument–based monetary policy. Belarus continued to use money emission, gaining seigniorage and inflation tax. The productivity of the inflation tax can be analyzed by comparing the revenue actually raised from inflation tax with the revenue that could be raised if the quantity of money had risen at a constant rate. The present paper, based on Cagan's (1956) seminal work, analyzes the effect of inflation on seigniorage revenue in Belarus, drawing conclusions about the effectiveness of monetary policy in 1995–2002, and about the consequences of inflationary financing. [ABSTRACT FROM AUTHOR]

This study examines the dynamics and determinants of inflation in the Ottoman Empire during the 1586-1913 period. There are two possible reasons for inflation: fiscal expansion and monetary expansion, which could be generated through the debasement of local currency (Akçe). We used a set of political and structural variables in order to explain the change in inflation dynamics. In particular, we considered the war years, periods of Ottoman history that show different characteristics (the slow-down period, the recession period and the break-up period) and the period of constitutional monarchy. Moreover, we tested whether the inflation process was the same for each sultan and whether each sultan's behavior during the first year was different from the rest of his reign. The empirical evidence reported here suggests that war accelerated inflation as expected and fiscal expansion rather than the debasement of the Akçe was the main reason for inflation. Moreover, the slow-down, the recession and the break-up periods affected inflation positively; both fiscal expansion and the debasement of the Akçe were seen in these three periods as sources of inflation. While employing different inflationary policies during his reign, each sultan accelerated inflation in the first year of his reign by the debasement of the Akçe or by fiscal expansion. Last, the constitutional monarchy period had a significant positive effect on inflation although fiscal expansion, rather than the debasement of the Akçe, was the source of inflation during this period. [ABSTRACT FROM AUTHOR]

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The paper considers a monopolistically competitive intertemporally optimizing monetary economy featuring long-term growth. Inflatio is generated through sluggish price-setting and contributes to budgetary finance through seignorage. This setup permits exploration of the interaction between inflation and growth in a tractable way. Superneutrality holds in the long but not the short run. The budget deficit fuels inflation with a hysteresis. Growth and inflation are negatively correlated in the long run, with causality running from the former to the latter, and positively correlated in the short run regardless of the origin of shocks. Price flexibility precipitates adjustment but appears also to destabilize output. [ABSTRACT FROM AUTHOR]

The article discusses the Real (stabilisation) plan of Brazil and its failure of late. The main aims of the plan were; to achieve financial equilibrium without seignorage gains, to have a stable distribution of income in a non-inflationary and non-indexed environment, and remove inflation without introducing a currency board or dollarisation. Brazil should have been able to extract maximum profit out the unusual liquidity of the international credit markets with the plan. One of the inconsistencies in the plan was its relationship with short term and speculative capital inflows. The domestic liquidity increased rapidly as a result of the growth of the domestic public debt because of the Real plan.

This paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations. It develops a unifying accounting framework and suggests a general measure for seigniorage, which encompasses the standard measures employed in the literature. In addition, the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the Ramsey principle. We show that the different recommendations of the public finance literature, i.e. the Friedman rule of optimal deflation, [moderately] positive inflation, and seigniorage maximizing inflation, are specific solutions to the optimal taxation problem. The paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion. As possible solutions to the time consistency problem, we consider reputational forces, institutional reforms that establish central bank independence, and specific ways of asset and debt management. In particular, it is formally shown that a modified version of the asset and debt management scheme suggested by Persson, Persson, and Svensson is not only necessary but also sufficient for optimality, although this did not hold in their model. [ABSTRACT FROM AUTHOR]

A model is presented in which governments can select real expenditure levels that are feasible, but are sufficiently high that a balanced budget is impossible. Thus, governments with large expenditures are committed to inflationary finance schemes. This is the case, even though the governments in question have access to lump-sum taxes. In addition, the model can explain why poorer countries tend to make heavier use of the inflation tax than do wealthier countries, and can account for the existence of country-specific fiat monies. [ABSTRACT FROM AUTHOR]

It is the purpose of this article to explore how bank regulation and the state of competition in the banking industry affect both government revenue and the bank profits. The model consists of a three-asset economy: government fiat money, with zero yield which serves as currency and reserves of banks; deposits issued by the banking system; and real assets, yielding a fixed real rate of return, set at zero for convenience. There is no uncertainty, the economy experiences no real growth, and the government controls the nominal supply of high-powered money and the reserve ratio on deposits issued by banks. Under these conditions the long-run equilibrium is marked by an inflation rate which is equal to rate of growth of high-powered money and is equivalent to the market rate of interest. This analysis demonstrates that the revenue derived from monetary expansion is critically dependent on the state of regulation and competition in the banking industry. Government seigniorage is higher if the banking system is competitive than if it is monopolized since deposit rates are lower under monopoly banking.

We design and analyze experimental versions of monetary overlapping generations economies under alternative policy regimes. Economies with a constant level of real deficit financed through seignorage, economies in which the level of deficit is adapted in order to follow a monetary policy with a target rate of inflation, and economies with preannounced changes in deficit levels are reported here. We also examine the behavior of an economy with no stationary competitive equilibrium. Our time series are compared to rational expectations equilibrium paths and to adaptive learning dynamics. [ABSTRACT FROM AUTHOR]

This paper discusses the implications of the validity of the conditioning hypothesis for the maintained money demand equation for an inflation tax analysis. We also test the validity of the quantity-theoretical inflation tax model for the post-1980 quarterly Turkish data by using Johansen cointegration techniques. The results suggest that the tax rate (inflation) is weakly exogenous for the parameters of the long-run money demand (tax base) equation. This result, consistent with a Keynesian endogenous seigniorage-exogenous inflation tax rate theory prior, does not support the hypothesis that the Turkish inflation can be explained by the conventional inflation tax revenue-maximizing motive alone. [ABSTRACT FROM AUTHOR]