The Economic Effects of Inflation Tax Instruments in an Overlapping-Generations Economy with Production
AbstractMost inflation tax literature considers currency as the entire monetary base. In reality, however, many countries impose inflation tax on the required reserves of the banking system as well as on currency. Developing countries in particular usually augment the currency component of the monetary base by imposing high reserve requirements on bank deposits. This paper incorporates financial intermediaries into a general equilibrium setting in order to analyze the reserve component of the inflation tax. We present a Diamond-type overlapping-generations model in the context of a developing open economy, and analyze the economic consequences of changes in the reserve requirement and the rate of inflation. The model displays some results that are different from those of the existing literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 3 (2002)
Issue (Month): 2 (November)
Inflation tax; Reserve requirement; Factor-price frontier;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Galor, Oded & Ryder, Harl E., 1989. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Journal of Economic Theory, Elsevier, vol. 49(2), pages 360-375, December.
- Drazen, Allan, 1981. "Inflation and capital accumulation under a finite horizon," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 247-260.
- Bencivenga, V.R. & Smith, B.D., 1990.
"Deficits, Inflation, And The Banking System In Developing Countries: The Optimal Degree Of Financial Repression,"
RCER Working Papers
214, University of Rochester - Center for Economic Research (RCER).
- Bencivenga, Valerie R & Smith, Bruce D, 1992. "Deficits, Inflation, and the Banking System in Developing Countries: The Optimal Degree of Financial Repression," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 767-90, October.
- Andrew B. Abel, 1987.
"Optimal Monetary Growth,"
NBER Working Papers
2136, National Bureau of Economic Research, Inc.
- Andrew B. Abel, . "Optimal Monetary Growth," Rodney L. White Center for Financial Research Working Papers 02-87, Wharton School Rodney L. White Center for Financial Research.
- Andrew B. Abel, . "Optimal Monetary Growth," Rodney L. White Center for Financial Research Working Papers 2-87, Wharton School Rodney L. White Center for Financial Research.
- Davis, George & Toma, Mark, 1995. "Inflation, reserve requirements, and real interest rates with direct and indirect loan markets," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 515-531.
- Bacchetta, Philippe & Caminal, Ramon, 1992. "Optimal seigniorage and financial liberalization," Journal of International Money and Finance, Elsevier, vol. 11(6), pages 518-538, December.
- Joydeep Bhattacharya & Mark G. Guzman & Elisabeth Huybens & Bruce D. Smith, 1995.
"Monetary, Fiscal, and Bank Regulatory Policy in a Simple Monetary Growth Model,"
9501, Centro de Investigacion Economica, ITAM.
- Bhattacharya, Joydeep & Huybens, Elisabeth & Guzman, Mark G. & Smith, Bruce D., 1997. "Monetary, Fiscal, and Bank Regulatory Policy in a Simple Monetary Growth Model," Staff General Research Papers 5136, Iowa State University, Department of Economics.
- Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
- Brock, Philip L., 1984. "Inflationary finance in an open economy," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 37-53, July.
- Elisabeth Huybens & Bruce D. Smith, 1996.
"Financial Market Frictions, Monetary Policy and Capital Accumulation in a Small Open Economy,"
9608, Centro de Investigacion Economica, ITAM.
- Huybens, Elisabeth & Smith, Bruce D., 1998. "Financial Market Frictions, Monetary Policy, and Capital Accumulation in a Small Open Economy," Journal of Economic Theory, Elsevier, vol. 81(2), pages 353-400, August.
- Weiss, Laurence M, 1980. "The Effects of Money Supply on Economic Welfare in the Steady State," Econometrica, Econometric Society, vol. 48(3), pages 565-76, April.
- Bhattacharya, Joydeep, et al, 1997. "Monetary, Fiscal, and Reserve Requirement Policy in a Simple Monetary Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 321-50, May.
- Brock, Philip L, 1989. "Reserve Requirements and the Inflation Tax," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 106-21, February.
- Baltensperger, Ernst & Jordan, Thomas J., 1997. "Seigniorage, banking, and the optimal quantity of money," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 781-796, June.
- Romer, David, 1985. "Financial intermediation, reserve requirements, and inside money: A general equilibrium analysis," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 175-194, September.
- Rangan Gupta, 2005. "A Generic Model of Financial Repression," Working papers 2005-20, University of Connecticut, Department of Economics, revised Jul 2005.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Qiang Gao).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.