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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.)

The paper explores the role, evolution and ruling principles of the concept of “money” in the 21st Century. In this continuously evolving context, cryptocurrencies and Blockchain technology are widely considered the most relevant monetary innovations of the last decades. By means of a macro-founded logical-analytical approach combined with statistical evidence, the paper provides arguments: 1. dismissing the “innovation myth” behind cryptocurrencies because of de facto representing a comeback of the private issue of means of payments and, more problematically, seigniorage at its best; 2. confirming that crypto-tokens do not comply with basic, still ruling monetary principles; 3. suggesting that excess liquidity is already invested in crypto-markets (which are themselves “inflationary”, namely not backed by real value (i. e. GDP). The concrete risk is, once again in economic history, represented by facing a financial bubble. [ABSTRACT FROM AUTHOR]

The widespread prevalence of debasements in medieval Europe constitutes a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. I explore two properties of commodity monies that might make holding light coins more desirable, namely indivisibility and imperfect recognizability. If the agent trades indivisible coins, there are inefficiencies arising from over production of goods when the agent uses the heavier coin. Also, when coins are imperfectly recognizable, the heavy coin faces adverse selection. I find that under some parameters, indivisibility by itself leads to positive revenue following debasements, but in a way that eliminates co‐circulation of coins. While with a sufficient degree of imperfect information, debasements can generate positive revenue and also co‐circulation of coins. [ABSTRACT FROM AUTHOR]

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]

This article describes and measures how the Bank of Amsterdam supplied a successful fiat money in a world of specie by offering the unlimited repo of large coins at a near-zero rate. Our data from 1736 to 1791 finds that such liberal access led to volatile loan levels and that the Bank responded with sterilization by means of open market operations. In this way, the Bank held its money stock at a roughly constant level and helped stabilize its value. Profit was another part of the Bank's policy framework, and the pursuit of seigniorage eventually compromised stabilization. [ABSTRACT FROM AUTHOR]

What or who governs central bank decisions? Most considerations focus on motivations. Instead, we consider the extent to which specific behaviors have adaptive value in the context of central banking. From that perspective, poor decisions are not the product of poor motivations. They are, instead, a product of the poor institutions within which central bank decision makers operate. [ABSTRACT FROM AUTHOR]

During the U.S. Civil War, the Confederate Congress adopted three currency reforms that were intended to reduce the quantity of Treasury notes in circulation by inducing the money-holding public to exchange their notes for long-term bonds. In this paper, we examine the political factors that influenced the adoption of the reforms and their effect on the flow of seigniorage - revenue that the government derived by using the newly-printed Treasury notes to purchase the goods and services it required. We argue that the bifurcation of the Confederate Congress into two groups – those legislators that represented the Confederacy's interior and those from areas no longer under Confederate control – contributed to the adoption of the reforms. Our findings indicate that representing an area outside of the rebel government's control increased the likelihood that a legislator would support efforts to reform the currency by over 90 percent. In addition, our results indicate that the rate of monetary expansion in the South was below that which would have maximized the revenue from seigniorage. We find that the reforms reduced the flow of seigniorage by approximately 57 percent, depriving the Confederate government of much-needed revenue. [ABSTRACT FROM AUTHOR]

In the literature, political instability is shown to raise seigniorage and/or debt, but there is no debt‐seigniorage trade‐off. However, what happens when the IMF gets involved? Based on a political economy model of intertemporal public finance this paper presents qualitatively new and robust results. First, political instability causes myopic government behaviour and produces more debt, not more seigniorage. Second, IMF policies requiring debtor countries to achieve both monetary and fiscal stability at the same time are ineffective. Third and surprisingly at first sight, debt conditionality aiming at monetary stability is particularly effective in heterogeneous societies with unstable governments. [ABSTRACT FROM AUTHOR]

The article reports on inflation tax in an economy where there is no centralized decision maker, on competitive externalities, and on optimal seigniorage. Yugoslavia is given as an example of a monetary union that generated inflationary bias because it did not address competitive externalities. The inflation tax was determined by a group of decision makers who competed for tax revenues and printed paper money via the central bank, which functioned only as a printing agency. The central bank's failure to impose fiscal discipline and the ethnic and political frictions among provinces are assumed to be responsible for inflation. Budget constraints, time-consistent equilibrium, and the elimination of inflationary bias by a central government's control over monetary policy 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.

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.

Empirical investigation of the average level of seigniorage in a cross-section of (up to) ninety countries for the period 1971-1990 suggests that optimum tax theory explains up to 40 percent of the cross-country variation in seigniorage, since seigniorage is higher where its deadweight tosses are probably lower and where deadweight losses from conventional taxation are probably higher, but that average government spending is nota determinant of seigniorage. Practical concerns about financing transitory government spending explain some of the remaining variation in seigniorage, and central bank independence and political instability are useful as well. In contrast, 90 percent of the cross-country variation in conventional taxation appears to be determined by the level of government spending and deadweight losses, and additional variables do not add to the results. [ABSTRACT FROM AUTHOR]

We examined a setting where decision making about financing a given amount of government spending is decentralized. Seigniorage is the residual tax that passively adjusts to meet the budget constraint. We place this budget-making process in a repealed game setting and characterize the cooperative tax-seigniorage function. Three main results are found: (i) Seigniorage and transitory changes in output are positively correlated. This result holds alter controlling for changes in government spending, (ii) A positive (negative) covariation between current-period government spending and transitory output strengthens (weakens) the positive relationship between seigniorage and transitory output, (iii) Seigniorage is negatively correlated with trend output growth. Time series empirical tests using annual data for twenty OECD countries support the first two results. A test using cross-section data on seventy-live countries confirms the third hypothesis. [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.

While sitting in their comptoir (office), merchants in early modern Holland were able to manage their plantations in the West Indies or, nearby, their seigniories in the Netherlands because they could make use of records spanning space and time. The merchants knew that information was not only instrumental in running their own business, but was also effective on a larger scale in exercising knowledge, control, and power. The performative power of records—that they may make, and in fact do make a difference in status before and after—was used in the management at a distance. From the seventeenth century, women became involved in business. They got access to the office where records supported business outside the home, but as part of everyday life. [ABSTRACT FROM AUTHOR]

Brazil has had a long period of high ination. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-ination period (1960{1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-ination period (1995{2016) was characterized by improvements in all of these features, but it did not lead to significant improvements in economic growth. In addition, we document a strong positive correlation between ination rates and seigniorage revenues, although ination rates are relatively high for modest levels of seigniorage revenues. Finally, we discuss the role of the weak institutional framework surrounding the fiscal and monetary authorities and the role of monetary passiveness and ination indexation in accounting for the unique features of ination dynamics in Brazil. [ABSTRACT FROM AUTHOR]

Despite the lack of political accountability, ancient autocracies maintained a level of monetary stability that rivals modern democracies. This paper hypothesizes that it is the threat of counterfeiting that has constrained currency debasement. Unwilling to share seigniorage with counterfeiters, who are active only if currency is debased, the government refrains from debasement unless in extreme fiscal situations. To document the facts, we build a database of historical Chinese copper coins that covers the period from the Qin dynasty (221 BC-207 BC) to the Republic of China. We also use the introduction of the steam press in late Qing China as a natural experiment to test the theory. The steam press produced coins of fine patterns that counterfeiters were unable to mimic. As the theory predicts, the removal of the threat of counterfeiting triggered the most serious debasement in the history of the Qing dynasty (1644-1912). [ABSTRACT FROM AUTHOR]

A currency manufacturer obtains a tremendous advantage of the creation process called seigniorage and from the process of distributing money in the form of interest profits. Dollar is the most widely used instrument in the world, both in international transactions and foreign exchange. This phenomenon provides tremendous benefits to the United States unilaterally, both economic and political stability. While the countries of the world have a tremendous monetary dependence on the US with all its advantages, this is considered unfair and disadvantageous. A fair monetary system needs to be initiated so that all nations can benefit equally and reduce the hegemony of a particular country. [ABSTRACT FROM AUTHOR]

Abstract: The study investigates how the degree of exchange rate management conditions the relationship between seigniorage and governments’ natural resource revenues using a sample of 140 countries over the period from 1971 to 2012. It also disaggregates natural resource revenues to investigate if this relationship holds across the various types of natural resources. The main approach is to estimate dynamic panel data interaction models. The study finds that under exchange rate regimes characterized as fixed or of limited flexibility an increase in natural resource rents is associated with an increase in seigniorage. Under crawling currency bands and managed floating, an increase in natural resource rents has little association with seigniorage. Under exchange rate regimes permitting greater exchange rate flexibility, greater natural resource rents allow less reliance on seigniorage. Additionally, the direct relationship between natural resource rents and seigniorage is driven mostly by oil and natural gas. [ABSTRACT FROM AUTHOR]

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]

The article addresses the question of whether the U.S. Congress should allow banks to issue their own private currency. In this discussion, the article describes the role of the central bank in operating or regulating a payments system, the technological advances in currency, the effect of the National Currency Act, the loss of seigniorage, the effectiveness of monetary policy, the stability of monetary system, the history of uniform currency, and the need to develop models that explain the use and form of money.

This study employs a general equilibrium monetary search model to examine the effects of the recent dollarization in North Korea on seigniorage and prices. Maximum seigniorage is generated at a high rate of money growth when dollarization is mild. However, under a high degree of dollarization seigniorage declines sharply when the money growth rate is high. Accordingly, seigniorage can be increased by dedollarizing the economy through lowering the money growth rate. This finding implies that the post-2013 price stabilization may be a result of the restriction on printing of money with the aim of increasing seigniorage. This finding also recognizes that the North Korean authorities have little room for maneuver on monetary policy under the conditions of widespread dollarization. [ABSTRACT FROM AUTHOR]

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]

This paper presents a novel perspective on industrial practices in modern competitive capitalist economies, questioning, in particular, the link between prices, competition, and the quality of goods and services. It tries to characterize a business practice that consists in reducing prices and maintaining (or increasing) profit margins by reducing the quality of goods and services while still presenting them as the same as before. The paper is primarily concerned with the practice of producing inferior quality goods by reducing the quantity of inputs used in the production process, or mixing inputs with cheaper constituents. The proposed term for this practice, "industrial seigniorage," is based on the historical privilege of feudal lords (from Old French seigneur), who -- possessing the right to mint gold coins -- made a profit by adding cheaper base metals to the bullion. The present, essentially exploratory investigation attempts to delineate the widespread existence of such practices in various industrial sectors. It strives to explain the fundamental elements of consumer behavior that enable this practice to exist and discusses the effects of industrial seigniorage on several social issues. The attempt of the paper is finally to show that contrary to the ideology of capitalism, competition does not necessary lead to benefits for consumers or to an increase in product quality. [ABSTRACT FROM AUTHOR]

A specific monetary tax − called periodic re-coinage − was applied for almost 200 years in large parts of medieval Europe. Old coins were frequently declared invalid and exchanged for new ones based on publicly announced dates and exchange fees. A theoretical framework of how periodic re-coinage works in practice is tested on Swedish coinage. The theory suggests that economic backwardness, limited monetisation of society and separate currency areas facilitated re-coinage. The Swedish experience is extraordinarily consistent with this theory. It is shown that Sweden adopted coin types similar to those minted in Continental Europe during the Middle Ages and the corresponding coinage and monetary taxation policies. Periodic re-coinage was applied with varying frequency from 1180 to 1290. However, monetisation increased in the late thirteenth century, making periodic re-coinage more difficult, and long-lived coins were introduced in 1290. With the end of periodic re-coinage, Swedish kings accelerated the debasement of long-lived coins, which continued until the beginning of the sixteenth century. [ABSTRACT FROM AUTHOR]

What happened to the seigneurial system after 1854? The seigneury remained a source of revenue and the seigneur, a person or organization deriving income from the land, as the Act for the abolition of feudal rights and duties in Lower Canada converted the cens et rentes into constituted rents, which led to the financialization of the seigneury. This is all the more obvious in the seigneury of Beauharnois, a valuable seigneury whose last two owners were financial institutions, namely The Montreal Investment Association and The Montreal Investment Trust. Assuming that most of the "censitaires" or tenants would not redeem the capital of their rents in order to commute the tenure of their holdings into freehold, these companies were able to obtain substantial revenue from their seigneury until 1940, when the Quebec government definitively put an end to the constituted rents. Paradoxically, in Beauharnois this revenue was even greater after the abolition of the seigneurial system than it was before. [ABSTRACT FROM AUTHOR]

The article refers to essays in "Handbook of Monetary Economics," comments on research methods used in "Seigniorage As a Tax: A Quantitative Evaluation," by Ayse Imrohoroglu and Edward C. Prescott, and focuses on the author's own views concerning inflation. Prescott and Imrohoroglu examined the welfare effect of inflation taxes with an experiment based on fixed nominal interest rates. The author states that transitory and persistent inflation result from negative aggregate supply shocks and from increases in the inflation tax without reductions in other taxes. He also states that consumers understand that higher price levels are associated with negative aspects of real disposable incomes.

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.

Controlling for a more comprehensive set of economic structure variables and using system generalized method of moment ( GMM) dynamic panel estimation, we consider the determinants of seigniorage. While we confirm some results found in previous literature, including an inverse relationship of financial development and exchange rate management to seigniorage, we find little evidence that political instability and polarization lead to greater reliance on seigniorage. We also find robust evidence that the size of the shadow economy and natural resource rents are directly related to seigniorage, the latter result likely a result of exchange rate management. Thus, an effective strategy to reduce reliance on seigniorage is to lower the incentives to operate in the shadow economy, while exchange rate management may be counter-productive in countries with considerable natural resource rents. ( JEL E5, O50) [ABSTRACT FROM AUTHOR]

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]

This paper analyses the dynamic interaction between monetary and fiscal policies in the presence of bureaucratic corruption. Corruption constrains the fiscal capacity to tax and increases the reliance on inflation (seigniorage). Given the restrictions that corruption imposes, a monetary reform strengthening central bank independence induces strategic debt accumulation; the government has the incentive to use debt and indirectly ‘force’ the central bank to pursue expansionary monetary policy. This result is augmented by the size of bureaucratic corruption, posing difficulties on the achievement of both a balanced debt process and price stability. The adverse implication of corruption on debt accumulation, given central bank independence, is supported in a large cross-sectional event study for developed and developing countries. Complementing the analysis with a measure for the level of independence each central bank reform enacted, the impact of corruption is greater, the higher the degree of independence granted. The results are also confirmed when accounting for countries that did not forego meaningful reforms and our findings are robust to different sub-samples, control variables and unobserved heterogeneity. [ABSTRACT FROM AUTHOR]

Monetary policy is superneutral in an overlapping generations model. Previous authors have argued that superneutrality does not hold in such a setting. However, the standard results rely on the counter-factual premise of helicopter money and are overturned if money creation through open market operations is taken into account. This result suggests that a more realistic representation of monetary policy may generally be helpful. [ABSTRACT FROM AUTHOR]

Most of countries covered by natural forests are developing countries, with limited ability to levy taxes and restrained access to international credit markets. Consequently, they are amenable to draw heavily on two sources of government financing, namely seigniorage and deforestation revenues. First, we develop a theoretical model emphasizing a substitution effect between seigniorage and deforestation revenues. Second, a panel-data econometric analysis over the 1990–2010 period confirms our findings. Consequently, a tighter monetary policy hastens deforestation. Third, we extend the theoretical model and show that international transfers dedicated to forest protection can upturn the positive link between tighter monetary policies and deforestation, and then discuss the relevance of this finding with respect to recent institutional arrangements. [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]

This paper studies the effects of alternative tax policies (a consumption tax, seigniorage tax, and tax switch) on economic growth under different methods of government budget adjustment in a monetary endogenous growth model with a labor-leisure choice and a cash-in-advance constraint which is only imposed on consumption. It is found that the validity of both the Mundell-Tobin effect and the consumption tax neutrality crucially depends on the adjustment methods used to maintain the balanced government budget. In addition, we find that a switch from a consumption tax to a seigniorage tax unambiguously enhances economic growth. This result stands in sharp contrast to that of Ho et al. (J Money Credit Bank 39:105-131, ), in that it does confirm the validity of the qualitative equivalence between the money-in-the-utility-function and cash-in-advance approaches in terms of the effect of tax shifting away from a consumption tax towards a seigniorage tax. [ABSTRACT FROM AUTHOR]

The paper deals with the discussion on the alternative ideas on money, created by Silvio Gesell, Frederic Soddy and Karl Ballod. Particularly, the ideas of full-reserve banking, privilege of seigniorage and the principle of demurrage are discussed in the context of possible implementation of these ideas in a future economy. Large part of the paper is library-based, considering and briefly explaining the previously mentioned ideas, and supplementing them with the opinions of the modern economists. The discussion of the possible evolutionary way to implement those ideas is based on the logical analysis and conclusions, derived from the discussions of the author with academicians and financiers. The results lead to the conclusion that these ideas, which may seem unrealistic according the existing paradigm of growth, may turn out to be useful to form the basis of a new monetary and financial system within the new economic paradigm. The paper is an insight into unorthodox proposals on money, which may be useful to specialists and students, investigating monetary and financial systems. [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]

Do immigrants have a higher demand for large-denominated banknotes than natives? This micro study examines whether banknote orders for CHF 1,000 notes are concentrated in Swiss municipalities with a high foreign-to-native ratio. The evidence for 251 Swiss municipalities finds that immigrants hoard fewer CHF 1,000 banknotes than natives. This empirical result means that immigration reduces seigniorage (per person) as measured by banknote orders. A 1% increase in the immigrant-to-native ratio is coincident with a reduction in banknote orders by CHF 4,000. This reduction is attributed to specific traits linked to immigrants. [ABSTRACT FROM AUTHOR]

This paper examines the growth and welfare effects from an increase in the rate of money supply in an Ak type growth model with a relative wealth-enhanced social status motive, production externalities, and liquidity constraints. When only consumption is constrained by liquidity, fast money supply can hasten output growth unless seigniorage revenue is wasted and production externalities do not exist. We find that even though money growth normally promotes economic growth, it does not improve welfare when capital stock is over-accumulated. In general, an optimal monetary policy minimizes seigniorage. Our results also conclude that the optimal monetary policy rarely follows the Friedman rule. [ABSTRACT FROM AUTHOR]

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]

This article transcripts and comments a hitherto unpublished letter by David Ricardo, dated 19 January 1823 and addressed to Grenfell. In this letter Ricardo opposes the adoption of a double standard of money, two years after the return to convertibility of banknotes and in the midst of an economic recession that pressed for drastic monetary changes. It contains an argument – linking the double standard of money, the seignorage on the silver coin, the behaviour of the Bank of England, and the fall in the value of the pound – which is to be found nowhere else in Ricardo's works. [ABSTRACT FROM PUBLISHER]