Disinflation against the Environment? An application to the trade-off between seigniorage and deforestation
AbstractThe forest still covers an important share of land area in many developing countries and represents an important source of revenue for governments. Another major contribution to government revenues comes from printing money, namely the seigniorage. Building on a simple theoretical model where governments target inflation and aim at reducing deforestation while minimising a welfare loss function, we exhibit the potential substitution effect between seigniorage and deforestation revenues. Regressions run on a panel of developing countries show that there exists a non-negligible substitution effect between seigniorage and deforestation revenues, which is, as suggested by the theoretical model, even stronger if the endogenous character of seigniorage is taken into account. Adding variables suggested by the theoretical model as well as usual control variables in deforestation equations, do not alter the main result. As a consequence, disinflation policies as recommended by the IMF, may hasten deforestation. The model is extended to address this problem, which shows that international transfers dedicated to rainforest protection may upturn the positive correlation between tighter monetary policies and deforestation and give some additional support to REDD's advocates.
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Date of creation: 06 Jan 2011
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deforestation; seigniorage; inflation; developing countries; Panel Data Analysis;
Other versions of this item:
- Alexandru MINEA & Pascale COMBES MOTEL & Jean-Louis COMBES & Patrick VILLIEU, 2010. "Disinflation against the Environment? An application to the trade-off between seigniorage and deforestation," Working Papers 201014, CERDI.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
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.:
- Pascale Combes Motel & Romain Pirard & Jean-Louis Combes, 2011.
"A methodology to estimate impacts of domestic policies on deforestation: Compensated Successful Efforts for “avoided deforestation” (REDD),"
- Combes Motel, P. & Pirard, R. & Combes, J.-L., 2009. "A methodology to estimate impacts of domestic policies on deforestation: Compensated Successful Efforts for "avoided deforestation" (REDD)," Ecological Economics, Elsevier, vol. 68(3), pages 680-691, January.
- Romain PIRARD & Pascale COMBES MOTEL & Jean-Louis COMBES, 2008. "A methodology to estimate impacts of domestic policies on deforestation: Compensated Successful Efforts for “avoided deforestation” (REDD)," Working Papers 200805, CERDI.
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