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Dynamic Seigniorage Theory

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  • OBSTFELD, MAURICE

Abstract

This paper develops a dynamic model of seigniorage in whicheconomies equilibrium paths reflect the ongoing strategicinteraction between an optimizing government and a rational public.The model extends existing positive models of monetary policy andinflation by explicitly incorporating the intertemporal linkagesamong budget deficits, debt, and inflation. A central finding is thatthe public s rational responses to government policies may wellcreate incentives for the government to reduce inflation and thepublic debt over time. A sufficiently myopic government may, however,provoke a rising equilibrium path of inflation and public debt.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 1 (1997)
Issue (Month): 03 (September)
Pages: 588-614

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Handle: RePEc:cup:macdyn:v:1:y:1997:i:03:p:588-614_00

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Cited by:
  1. Javier Díaz-Giménez & Giorgia Giovanetti & Ramon Marimon & Pedro Teles, 2003. "Nominal Debt as a Burden on Monetary Policy," Working Papers 8, Barcelona Graduate School of Economics.
  2. Campbell Leith & Simon Wren-lewis, 2006. "Fiscal Sustainability in a New Keynesian Model," WEF Working Papers 0006, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  3. Olga Arratibel & Jonathan P. Thomas, 2001. "The consequences of staggered wage setting for the credibility of monetary policy," Macroeconomics 0103002, EconWPA.
  4. Gauti B. Eggertsson, 2011. "Fiscal Multipliers and Policy Coordination," Working Papers Central Bank of Chile 628, Central Bank of Chile.
  5. Owyong, David T., 2001. "Inflationary finance, capital mobility, and monetary coordination," International Review of Economics & Finance, Elsevier, vol. 10(4), pages 369-382, December.
  6. Gauti B. Eggertsson, 2003. "How to Fight Deflation in a Liquidity Trap," IMF Working Papers 03/64, International Monetary Fund.

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