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Reserve Requirements and the Inflation Tax

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Author Info
Brock, Philip L
Abstract

The inflation tax on currency and required bank reserves is modeled in a general equilibrium setting by specifying a transactions technology in which currency and demand deposits allow agents to economize on time spent transacting in the goods market. Revenue-maximizing conditions for the nominal interest rate and reserve ratio are analyzed. For any given revenue requirement less than the revenue-maximizing level, minimization of the welfare costs of inflationary finance results in the choice of a combination of the interest rate and reserve ratio that lies on a set of tangency points formed by iso-revenue and iso-welfare curves. Copyright 1989 by Ohio State University Press.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 21 (1989)
Issue (Month): 1 (February)
Pages: 106-21
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Handle: RePEc:mcb:jmoncb:v:21:y:1989:i:1:p:106-21

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  1. Juan David Prada Sarmiento, 2008. "Financial Intermediation and Monetary Policy in a Small Open Economy," BORRADORES DE ECONOMIA 005010, BANCO DE LA REPÚBLICA. [Downloadable!]
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  2. Huizinga, H., 1996. "The dual role of money and optimal financial taxes," Discussion Paper 99, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Renu Kohli & Kenneth Kletzer, 2001. "Financial Repression and Exchange Rate Management in Developing Countries: Theory and Empirical Evidence for India," IMF Working Papers 01/103, International Monetary Fund. [Downloadable!]
  4. Viktoria Hnatkovska & Amartya Lahiri & Carlos A. Vegh, 2008. "Interest Rates and the Exchange Rate: A Non-Monotonic Tale," NBER Working Papers 13925, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Joseph H. Haslag & Eric R. Young, 1998. "Revenue-maximizing monetary policy," Working Papers 98-01, Federal Reserve Bank of Dallas. [Downloadable!]
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  6. Denizer, Cevdet & Desai, Raj M. & Gueorguiev, Nikolay, 1998. "The political economy of financial repression in transition economies," Policy Research Working Paper Series 2030, The World Bank. [Downloadable!]
  7. Alberto Alesina & Vittorio Grilli & Gian Maria Milesi-Ferrett, 1993. "The Political Economy of Capital Controls," NBER Working Papers 4353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Hernando Vargas, . "Apertura, Encajes e Intermediación Financiera," Borradores de Economia 072, Banco de la Republica de Colombia. [Downloadable!]
  9. Chamley, Christophe & Honohan, Patrick, 1990. "Taxation of financial intermediation : measurement principles and application to five African countries," Policy Research Working Paper Series 421, The World Bank. [Downloadable!]
  10. Joseph Daniels & David Hoose, 1996. "Reserve requirements, currency substitution, and seigniorage in the transition to European monetary union," Open Economies Review, Springer, vol. 7(3), pages 257-273, July. [Downloadable!] (restricted)
  11. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI). [Downloadable!]
  12. Esther Fernández, 2002. "Política Monetaria Óptima en un Modelo con Intermediación Financiera," Documentos del Instituto Complutense de Análisis Económico 0206, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales. [Downloadable!]
  13. Xiaohui Zhang & Zhihong Ji & Yong Cui, 2009. "Reserve requirement, reserve requirement tax and money control in China: 1984–2007," Frontiers of Economics in China, Springer, vol. 4(3), pages 361-383, September. [Downloadable!] (restricted)
  14. Hernando Vargas, 1996. "Apertura, Encajes E Intermediación Financiera," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE. [Downloadable!]
  15. Stefano Battilossi, 2003. "Capital Mobility And Financial Repression In Italy, 1960-1990: A Public Finance Perspective," Working Papers in Economic History wh030602, Universidad Carlos III, Departamento de Historia Económica e Instituciones. [Downloadable!]
  16. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany. [Downloadable!]
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  17. Marco Espinosa-Vega & Bruce D. Smith & Chong K. Yip, 1998. "On government credit programs," Working Paper 98-2, Federal Reserve Bank of Atlanta. [Downloadable!]
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  18. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Riccardo De Bonis & Massimiliano Stacchini, 2009. "What determines the size of bank loans in industrialized countries? The role of government debt," Temi di discussione (Economic working papers) 707, Bank of Italy, Economic Research Department. [Downloadable!]
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