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Government Spending, Money Seigniorage and Macroeconomic Instability

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  • Kim-Heng Tan

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

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    Abstract

    This paper addresses the issue of the macroeconomic instability of the output effects of government spending financed by money seigniorage. The contribution of the paper is to show that these output effects are dependent on where the economy is in relation to certain inflation thresholds and that these thresholds are affected by the degree of ‘substitutability’ between government spending and private consumption. When government spending has no intertemporal effect on private consumption, there exists a single inflation threshold. When government spending has an intertemporal effect on private consumption, there exist two inflation thresholds. As the economy crosses each inflation threshold, it will suffer a reversal of output effects.

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    File URL: http://www.ntu.edu.sg/hss2/egc/wp/2005/2005-12.pdf
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    Bibliographic Info

    Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 0512.

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    Length: 20 pages
    Date of creation: Dec 2005
    Date of revision:
    Handle: RePEc:nan:wpaper:0512

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    Related research

    Keywords: reversal of output effects; inflation; money seigniorage; substitutability; complementarity;

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