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Commercial bank seigniorage and the macroeconomy

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  • Bossone, Biagio

Abstract

This article focuses on the role of commercial banks as creators of money, and specifically on their rent extraction power in the form of seigniorage. The article examines how the relative size of banks in the payment system combines with their capacity (and limits) to determine quantities and prices in the market for demand deposits, giving them the power to extract rents – seigniorage – from the economy, and clarifies the distinction between seigniorage from commercial bank money creation and profits from pure financial intermediation. The article studies how this form of seigniorage affects aggregate output, prices, and resource distribution, and draws political-economy and economic-policy implications.

Suggested Citation

  • Bossone, Biagio, 2021. "Commercial bank seigniorage and the macroeconomy," International Review of Financial Analysis, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:finana:v:76:y:2021:i:c:s1057521921001162
    DOI: 10.1016/j.irfa.2021.101775
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    Cited by:

    1. Bossone Biagio & Costa Massimo, 2021. "Money for the Issuer: Liability or Equity?," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 43-59, January.
    2. Biagio Bossone, 2021. "Bank Seigniorage in a Monetary Production Economy," Working Papers PKWP2111, Post Keynesian Economics Society (PKES).
    3. Samuel Demeulemeester, 2022. "What analytical framework for Sovereign Money? Some insight from the 100% Money literature, and a comment on criticisms," Working Papers hal-03751756, HAL.

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    More about this item

    Keywords

    Aggregate output; Commercial banks; Interest rate; Money creation; Resource distribution; Seigniorage;
    All these keywords.

    JEL classification:

    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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