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A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage

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  • varelas, erotokritos

Abstract

Chicago rule is shown to be the unique optimal monetary policy rule from the viewpoint of an intergenerational welfare-maximizing social planner. But, in the absence of commercial banking, it really mandates the elimination of the public sector, because it involves the elimination of central bank seigniorage and hence, of the government spending based on this seigniorage, rendering subsequently tax finance incapable of sustaining alone such spending. In the presence of commercial banking, the government does have the option of benefiting from commercial bank seigniorage by borrowing it countercyclically as implied by Chicago rule, which is found to operate like a full-reserve requirement

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48770.

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Date of creation: 01 Aug 2013
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Handle: RePEc:pra:mprapa:48770

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Keywords: Chicago rule; Seigniorage; Intergenerational modeling;

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