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A political economy model of monetary policy: decentralized decision making and competition for seigniorage

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  • Ronald Hillbrecht

Abstract

A political economy model is developed to provide a rationale of monetary policyin high inflation regimes, such as the Brazilian experience until the advent of the Plano Real.Decision making of monetary policy is assumed to be decentralized, where several decision--makers competitively determine the quantity of money. It is shown that equilibrium inflationis higher than under the alternative monetary regime where decision making is centralized atthe Central Bank. An important additional feature of this political economy model is that itdoes not rely on time-inconsistency to generate high and sub-optimal inflation. JEL Classification: E52; G21; H21.

Suggested Citation

  • Ronald Hillbrecht, 1999. "A political economy model of monetary policy: decentralized decision making and competition for seigniorage," Brazilian Journal of Political Economy, Center of Political Economy, vol. 19(4), pages 705-717.
    • Handle: RePEc:ekm:repojs:v:19:y:1999:i:4:p:705-717:id:1078
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    File URL: https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/1078/1063
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    More about this item

    Keywords

    New political economy; monetary policy; inflation; taxation; seigniorage;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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