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International Capital Markets and Central Bank Sovereignty

Author

Listed:
  • Jason L. Saving
  • Thomas R. Saving

Abstract

We derive the inflation elasticity of the demand for domestic currency using a shopping time model. The resulting transactions cost function is solidly grounded in a theory of the transaction process. The implied production functions for monetary services cannot have a constant elasticity of substitution. Application of these results to currency substitution implies that an open country that raises revenue via inflation seigniorage must reduce its inflation rate to the inflation rate of a dominant currency and that there exists a monetary reform that will result in maxiumum seigniorage at the inflation rate of that dominant currency.

Suggested Citation

  • Jason L. Saving & Thomas R. Saving, 1998. "International Capital Markets and Central Bank Sovereignty," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(1), pages 261-261, March.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199803)154:1_261:icmacb_2.0.tx_2-q
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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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