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Inflation level and inflation volatility: A seigniorage argument

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  • Dmitriev, Mikhail
  • Kersting, Erasmus K.

Abstract

We use a standard dynamic general equilibrium model with flexible prices, money in the utility function, exogenous fiscal policy and accommodating monetary policy to analytically demonstrate the positive relationship between the steady state level of inflation and business cycle inflation volatility. This result holds in the presence of unique as well as multiple equilibria.

Suggested Citation

  • Dmitriev, Mikhail & Kersting, Erasmus K., 2016. "Inflation level and inflation volatility: A seigniorage argument," Economics Letters, Elsevier, vol. 147(C), pages 112-115.
    • Handle: RePEc:eee:ecolet:v:147:y:2016:i:c:p:112-115
    DOI: 10.1016/j.econlet.2016.08.034
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    References listed on IDEAS

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    1. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
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    11. Mr. Stanley Fischer & Ms. Ratna Sahay & Mr. Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 2002/197, International Monetary Fund.
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    Cited by:

    1. Curran, Michael & Velic, Adnan, 2019. "Real exchange rate persistence and country characteristics: A global analysis," Journal of International Money and Finance, Elsevier, vol. 97(C), pages 35-56.
    2. Mehdi Hajamini, 2019. "Asymmetric Causality Between Inflation and Uncertainty: Evidences from 33 Developed and Developing Countries," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(2), pages 287-309, June.
    3. Garriga, Ana Carolina & Rodriguez, Cesar M., 2023. "Central bank independence and inflation volatility in developing countries," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1320-1341.
    4. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur & Yiangou, Jonathan, 2019. "A tale of two decades: the ECB’s monetary policy at 20," Working Paper Series 2346, European Central Bank.

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    More about this item

    Keywords

    Inflation; Inflation uncertainty; Seigniorage;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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