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Monetary Seigniorage in an Emerging Economy: Empirical Evidences

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  • Lekha Chakraborty

Abstract

It is often emphasised that monetary seigniorage financing of public sector deficits is technically a ¡°free lunch¡± if the economy has not attained the full employment levels. However, conservative macroeconomic policies in many emerging and developing economies, especially in the last two decades, have moved away from seigniorage financing to debt financing of deficits to give greater autonomy to the central banks. Against this backdrop, the paper analyses the fiscal and monetary policy co-ordination in India by constructing a monetary seigniorage Laffer curve. If such a curve exists, it is possible to derive a seigniorage-maximizing inflation rate to estimate the optimal level of seigniorage financing of deficits. The illustrative estimates from the Indian data using error correction mechanism models confirm the possibility of a monetary seigniorage Laffer curve.

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  • Lekha Chakraborty, 2018. "Monetary Seigniorage in an Emerging Economy: Empirical Evidences," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(5), pages 135-144, May.
  • Handle: RePEc:ibn:ijefaa:v:10:y:2018:i:5:p:135-144
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    References listed on IDEAS

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    Cited by:

    1. Krishanu Pradhan, 2019. "Analytical Framework for Fiscal Sustainability: A Review," Review of Development and Change, , vol. 24(1), pages 100-122, June.

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    More about this item

    Keywords

    fiscal-monetary policy co-ordination; Seigniorage; fiscal deficits; error correction mechanism; Seigniorage laffer curve;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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