Economics institutions are fundamental to achieve permanent growth in an environment of political stability and time consistent non-inflationary public finance. Nevertheless, inflationary finance has a persistent influence in several countries and there is a substantial literature dealing with this topic. Inflationary finance literature discusses two major aspects: one analyzes the limits of the inflation tax as a source of government revenue and the other analyzes the welfare implications of inflation. In both cases the results obtained are time inconsistent suggesting that governments unable to produce a credible price commitment can do better with an erratic monetary and fiscal policy than otherwise. This note elaborates on one of the fundamental aspects of time inconsistency - unhedged nominal assets in the hands of the public - and suggests, contrary to some literature, that an autonomous monetary authority can be made time consistent.
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Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.
Volume (Year): 26 (1989) Issue (Month): 78 () Pages: 169-176 Download reference. The following formats are available: HTML,
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