The paper identifies the sources of indeterminacy of monetary steady states in a model of optimum supply of money in which the government maximises revenue through seignorage subject to an underlying inflationary process. We show that the determination of the monetary expansion path is sensitive to the specification of the disequilibrium learning rule and is subject to informational problems. Determinacy is ensured under a specific learning rule, which combines elements of adaptive and rational expectations and is self-corrective. The solution provides an optimal monetary policy which combines zero inflation, positive money and balanced budget.
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Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number
9607.
Length: Date of creation: Mar 1996 Date of revision: Handle: RePEc:ukc:ukcedp:9607
Contact details of provider: Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP Phone: +44 (0)1227 764000 Fax: +44 (0)1227 827850 Web page: http://www.ukc.ac.uk/economics/
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Find related papers by JEL classification: E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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