Dynamic Seigniorage Theory: An Exploration
AbstractThis paper shows that the optimal extraction of seigniorage implies a strong tendency for inflation to fall over time toward its socially optimal level. The point is made using a multi-period model in which (i) the government can finance deficits through bond issue or money creation, (ii) private-sector expectations are rational, and (iii) the government sets the inflation rate each period in a discretionary manner. One way to view the model is as a synthesis of the "tax-smoothing" theory of government deficits, which predicts that the inflation tax follows approximately a martingale, and of models of discretionary policy making, which predict (absent reputation effects) that inflation is likely to exceed its socially optimal level. Both predictions are modified when the two approaches to explaining inflation are merged. Reputation effects play no role in the analysis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt712610vq.
Date of creation: 01 Mar 1997
Date of revision:
Contact details of provider:
Postal: F502 Haas, Berkeley CA 94720-1922
Phone: (510) 642-1922
Fax: (510) 642-5018
Web page: http://www.escholarship.org/repec/iber_econ/
More information through EDIRC
seigniorage; dynamic games; time consistency; Markov perfect equilibrium; Social and Behavioral Sciences; Economic Policy;
Other versions of this item:
- Maurice Obstfeld, 1989. "Dynamic Seigniorage Theory: An Exploration," NBER Working Papers 2869, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice, 1991. "Dynamic Seigniorage Theory: An Exploration," CEPR Discussion Papers 519, C.E.P.R. Discussion Papers.
- Maurice Obstfeld and ., 1997. "Dynamic Seigniorage Theory: An Exploration," Center for International and Development Economics Research (CIDER) Working Papers C97-085, University of California at Berkeley.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. Tirole & E. Maskin, 1982.
"A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large-Fixed Costs,"
320, Massachusetts Institute of Technology (MIT), Department of Economics.
- Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large Fixed Costs," Econometrica, Econometric Society, vol. 56(3), pages 549-69, May.
- Eric Maskin & Jean Tirole, 2010. "A Theory of Dynamic Oligopoly, 1: Overview and Quantity Competition with Large Fixed Costs," Levine's Working Paper Archive 397, David K. Levine.
- V.V. Chari & Patrick J. Kehoe, 1989.
122, Federal Reserve Bank of Minneapolis.
- Auernheimer, Leonardo, 1974. "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 598-606, May/June.
- Mankiw, N. Gregory, 1987.
"The optimal collection of seigniorage : Theory and evidence,"
Journal of Monetary Economics,
Elsevier, vol. 20(2), pages 327-341, September.
- N. Gregory Mankiw, 1988. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
- Kiguel, Miguel A & Liviatan, Nissan, 1988. "Inflationary Rigidities and Orthodox Stabilization Policies: Lessons from Latin America," World Bank Economic Review, World Bank Group, vol. 2(3), pages 273-98, September.
- Obstfeld, Maurice & Rogoff, Kenneth, 1983.
"Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 675-87, August.
- Maurice Obstfeld & Kenneth Rogoff, 1981. "Speculative hyperinflations in a maximizing models: can we rule them out?," International Finance Discussion Papers 195, Board of Governors of the Federal Reserve System (U.S.).
- Maurice Obstfeld & Kenneth Rogoff, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," NBER Working Papers 0855, National Bureau of Economic Research, Inc.
- Grossman, Herschel I. & Van Huyck, John B., 1986.
"Seigniorage, inflation, and reputation,"
Journal of Monetary Economics,
Elsevier, vol. 18(1), pages 21-31, July.
- Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January.
- Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
- Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- Cohen, Daniel & Michel, Philippe, 1988. "How Should Control Theory Be Used to Calculate a Time-Consistent Government Policy?," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 263-74, April.
- Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
- Robert B. Barsky, 1986.
"The Fisher Hypothesis and the Forecastability and Persistence of Inflation,"
NBER Working Papers
1927, National Bureau of Economic Research, Inc.
- Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 3-24, January.
- Marcus Miller & Mark Salmon, 1985. "Policy Coordination And Dynamic Games," NBER Chapters, in: International Economic Policy Coordination, pages 184-227 National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.