AbstractWhat is the seigniorage-maximizing level of inflation? Four models formulae for the seigniorage maximizing inflation rate (SMIR) are compared. Two sticky-price models arrive at very different quantitative recommendations although both predict somewhat lower SMIRs than Caganâ€™s formula and a variant of a .ex-price model due to Kimbrough (2006). The models differ markedly in how inflation distorts the labour market: The Calvo model implies that inflation and output are negatively related and that output is falling in price stickiness whilst the Rotemberg cost-of-price-adjustment model implies exactly the opposite. Interestingly, if our version of the Calvo model is to be believed, the level of inflation experienced recently in advanced economies such as the USA and the UK may be quite close to the SMIR.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200807.
Date of creation: 15 Jul 2008
Date of revision:
Contact details of provider:
Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
More information through EDIRC
Price stickiness; Revenue maximizing inflation; Inflation tax; Seigniorage; price dispersion.;
Other versions of this item:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-CBA-2008-07-30 (Central Banking)
- NEP-MAC-2008-07-30 (Macroeconomics)
- NEP-MON-2008-07-30 (Monetary Economics)
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.:
- Tatiana Damjanovic & Charles Nolan, 2010.
"Relative Price Distortions and Inflation Persistence,"
Royal Economic Society, vol. 120(547), pages 1080-1099, 09.
- Tatiana Damjanovic & Charles Nolan, 2006. "Relative Price Distortions and Inflation Persistence," CDMA Working Paper Series 200611, Centre for Dynamic Macroeconomic Analysis.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Easterly, William R & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1995.
"Money Demand and Seigniorage-Maximizing Inflation,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(2), pages 583-603, May.
- Easterly, William & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1992. "Money demand and seignorage - maximizing inflation," Policy Research Working Paper Series 1049, The World Bank.
- Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
- Martin Uribe & Stephanie Schmitt-Grohe, 2001.
"Optimal fiscal and monetary policy under sticky prices,"
Federal Reserve Bank of San Francisco, issue Jun.
- Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Optimal fiscal and monetary policy under sticky prices," Journal of Economic Theory, Elsevier, vol. 114(2), pages 198-230, February.
- Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Optimal Fiscal and Monetary Policy Under Sticky Prices," NBER Working Papers 9220, National Bureau of Economic Research, Inc.
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Optimal Fiscal and Monetary Policy Under Sticky Prices," CEPR Discussion Papers 2942, C.E.P.R. Discussion Papers.
- Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Optimal Fiscal and Monetary Policy Under Sticky Prices," Departmental Working Papers 200105, Rutgers University, Department of Economics.
- Kimbrough, Kent P., 2006. "Revenue maximizing inflation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1967-1978, November.
- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
- Tatiana Damjanovic & Charles Nolan, 2009. "Second Order Accurate Approximation to the Rotemberg Model Around a Distorted Steady State," CDMA Working Paper Series 200907, Centre for Dynamic Macroeconomic Analysis, revised 15 Apr 2010.
- Giovanni Di Bartolomeo & Patrizio Tirelli & Nicola Acocella, 2010.
"Trend inflation, endogenous mark-ups and the non-vertical Phillips curve,"
186, University of Milano-Bicocca, Department of Economics, revised May 2010.
- Di Bartolomeo Giovanni & Tirelli Patrizio & Acocella Nicola, 2010. "Trend inflation, endogenous mark-ups and the non-vertical Phillips curve," wp.comunite 0065, Department of Communication, University of Teramo.
- Damjanovic, Tatiana & Nolan, Charles, 2011.
"Second-order approximation to the Rotemberg model around a distorted steady state,"
Elsevier, vol. 110(2), pages 132-135, February.
- Damjanovic, Tatiana & Nolan, Charles, 2010. "Second-Order Approximation to the Rotemberg Model around a Distorted Steady State," SIRE Discussion Papers 2010-31, Scottish Institute for Research in Economics (SIRE).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp).
If references are entirely missing, you can add them using this form.