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Dynamic Seigniorage Theory: An Exploration

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Obstfeld, Maurice

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Abstract

This paper develops a dynamic model of seigniorage in which economies' equilibrium paths reflect the ongoing strategic interaction between an optimizing government and a rational public. The model extends existing positive models of monetary policy and inflation by explicitly incorporating the intertemporal linkages among budget deficits, debt and inflation. A central finding is that the public's rational responses to government policies may well create incentives for the government to reduce inflation and the public debt over time. A sufficiently myopic government may, however, provoke a rising equilibrium path of inflation and public debt.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 519.

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Date of creation: Mar 1991
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Handle: RePEc:cpr:ceprdp:519

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Keywords: Dynamic Games Markov Perfect Equilibrium Seigniorage Time Consistency

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References listed on IDEAS
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.:
  1. Kiguel, Miguel A & Liviatan, Nissan, 1988. "Inflationary Rigidities and Orthodox Stabilization Policies: Lessons from Latin America," World Bank Economic Review, Oxford University Press, vol. 2(3), pages 273-98, September.
  2. Cohen, Daniel & Michel, Philippe, 1988. "How Should Control Theory Be Used to Calculate a Time-Consistent Government Policy?," Review of Economic Studies, Blackwell Publishing, vol. 55(2), pages 263-74, April. [Downloadable!] (restricted)
  3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September. [Downloadable!] (restricted)
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  10. Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January. [Downloadable!] (restricted)
  11. Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January. [Downloadable!] (restricted)
  12. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August. [Downloadable!] (restricted)
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  13. 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. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Grossman, Herschel I. & Van Huyck, John B., 1986. "Seigniorage, inflation, and reputation," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 21-31, July. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Ourania Dimakou, 2006. "Monetary and Fiscal Policy Interactions: The Role of the Quality of Institutions in a Dynamic Environment," Birkbeck Working Papers in Economics and Finance 0607, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  2. Patrizio Tirelli, 1997. "Dynamic Seigniorage Models Revisited. Should Fiscal Flexibility and Conservative Central Bankers Go Together?," Working Papers 19, University of Milano-Bicocca, Department of Economics, revised Feb 1999. [Downloadable!]
  3. Torsten Persson & Gerard Roland & Guido Tabellini, . "The Theory of Fiscal Federalism: What Does it Mean for Europe?," Working Papers 101, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  4. Krichel, Thomas, 1993. "Seigniorage, taxation and myopia in EMU," MPRA Paper 4472, University Library of Munich, Germany. [Downloadable!]
  5. Beetsma,Roel M.W.J. & Bovenberg,A. Lans, 1995. "The role of public debt in the game of double chicken," Research Memoranda 025, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  6. Beetsma, R. & Bovenberg, L., 1995. "Does monetary unification lead to excessive debt accumulation," Discussion Paper 112, Tilburg University, Center for Economic Research. [Downloadable!]
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  7. Miravete, Eugenio J, 2001. "Time-Consistent Protection with Learning by Doing," CEPR Discussion Papers 2937, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Beetsma, R.M.W.J. & Uhlig, H., 1997. "An analysis of the "stability pact"," Discussion Paper 59, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  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. James Bullard & Christopher J. Waller, 2002. "Central bank design in general equilibrium," Working Papers 1998-002, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
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