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Competitive Externalities and the Optimal Seigniorage

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Author Info
Aizenman, Joshua

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Abstract

This study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank. The author derives the sequential rational expectation equilibrium, and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax Laffer curve. The analysis is interpreted for a country consisting of several states or provinces, where the centralized government system is weak. Similar results apply to the case of competing ministers in an economy where the central bank is weak. Copyright 1992 by Ohio State University Press.

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

Volume (Year): 24 (1992)
Issue (Month): 1 (February)
Pages: 61-71
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Handle: RePEc:mcb:jmoncb:v:24:y:1992:i:1:p:61-71

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Alessandra Casella, 1990. "Participation in a Currency Union," NBER Working Papers 3220, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Guillaume Cheikbossian, 2001. "When a Monetary Union Fails: A Parable," Open Economies Review, Springer, vol. 12(2), pages 181-195, April. [Downloadable!] (restricted)
  3. Joshua Aizenman, 1994. "On The Need For Fiscal Discipline in an Union," NBER Working Papers 4656, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. 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)
  5. Joshua Aizenman, 1990. "Soft Budget Constraints, Taxes, and the Incentive to Cooperate," NBER Working Papers 3561, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Guillermo Mondino & Federico Sturzenegger & Mariano Tommasi, 1992. "Recurrent High Inflation and Stabilization, A Dynamic Game," UCLA Economics Working Papers 678, UCLA Department of Economics. [Downloadable!]
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  7. Beetsma,Roel M.W.J. & Bovenberg,A. Lans, 1995. "Monetary union without fiscal coordination may discipline policymakers," Research Memoranda 024, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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  8. Andres Velasco, 1997. "Debts and Deficits with Fragmented Fiscal Policymaking," NBER Working Papers 6286, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Ari Aisen & Francisco José Veiga, 2003. "Does Political Instability lead to higher and more volatile inflation? A Panel Data Analysis," NIPE Working Papers 10/2003, NIPE - Universidade do Minho. [Downloadable!]
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  10. Guglielmo Maria Caporale & Davide Ciferri & Alessandro Girardi, 2008. "Are the Baltic Countries Ready to Adopt the Euro? A Generalised Purchasing Power Parity Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  11. Pompeo Posta & Valeria Bonis, 2009. "Strategic Interactions Among Central Bank and National Fiscal Authorities in a Monetary Union Subject to Asymmetric Country Shocks," Open Economies Review, Springer, vol. 20(2), pages 241-263, April. [Downloadable!] (restricted)
  12. Ari Aisen & Francisco José Veiga, 2005. "The Political Economy of Seigniorage," NIPE Working Papers 12/2005, NIPE - Universidade do Minho. [Downloadable!]
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  13. Alex Cukierman, 1993. "Central Bank Independence, Political Influence and Macroeconomic Performance: a Survey of Recent Development," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 30(91), pages 271-292. [Downloadable!]
  14. Sebastian Edwards, 1993. "The Political Economy of Infaliton and Stabilization in Developing Countries," NBER Working Papers 4319, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Andres Velasco, 1997. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Working Papers 6336, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July. [Downloadable!] (restricted)
  17. Edward J. Green, 2003. "Economic perspective on the political history of the Second Bank of the United States," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 59-67. [Downloadable!]
  18. Valeria De Bonis & Pompeo Della Posta, 2005. "Strategic interactions between monetary and fiscal authorities in a monetary union," Working Papers de Economia (Economics Working Papers) 26, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro. [Downloadable!]
  19. Aaron Tornell & Philip R. Lane, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March. [Downloadable!] (restricted)
  20. Russell W. Cooper & Hubert Kempf., 2001. "Dollarization and the conquest of hyperinflation in divided societies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-12. [Downloadable!]
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