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Competitive Externalities and the Optimal Seigniorage

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  • Aizenman, Joshua

Abstract

This study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank. The author derives the sequential rational expectation equilibrium, and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax Laffer curve. The analysis is interpreted for a country consisting of several states or provinces, where the centralized government system is weak. Similar results apply to the case of competing ministers in an economy where the central bank is weak. Copyright 1992 by Ohio State University Press.

Suggested Citation

  • Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
  • Handle: RePEc:mcb:jmoncb:v:24:y:1992:i:1:p:61-71
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    1. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-1428, November.
    2. Obstfeld, Maurice, 1984. "Multiple Stable Equilibria in an Optimizing Perfect-Foresight Model," Econometrica, Econometric Society, vol. 52(1), pages 223-228, January.
    3. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
    4. Alessandra Casella and Jonathan Feinstein., 1988. "Management of a Common Currency," Economics Working Papers 8891, University of California at Berkeley.
    5. Cukierman, Alex, 1988. "Rapid inflation -- deliberate policy or miscalculation?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 11-75.
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