A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage
AbstractChicago 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 48770.
Date of creation: 01 Aug 2013
Date of revision:
Chicago rule; Seigniorage; Intergenerational modeling;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-BAN-2013-08-05 (Banking)
- NEP-CBA-2013-08-05 (Central Banking)
- NEP-MAC-2013-08-05 (Macroeconomics)
- NEP-MON-2013-08-05 (Monetary Economics)
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