This paper considers a monopolist’s supply of outside paper money in a random-matching model with divisible money and divisible goods. When binding supply announcements are feasible, the revenue-maximizing policy is characterized by an initial period where the monopolist initiates a currency reform which destroys the value of any old currency, and then issues new money, which the issuer taxes thereafter with a constant gross growth rate of money. It is shown that this policy is time-consistent if the trading history of the issuer is public information and if money demanders respond to the relevation of defection by playing autarky.
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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number
iewwp156.
Find related papers by JEL classification: E00 - Macroeconomics and Monetary Economics - - General - - - General D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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