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Seigniorage and Inflation: The Case of Argentina

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  • Kiguel, Miguel A
  • Neumeyer, Pablo Andres

Abstract

This paper studies the relation between seigniorage and inflation in Argentina for the period 1979-1989. We estimate a money demand function and derive the Laffer curve for several sub-periods with different monetary/exchange rate regimes. We find that for most of the period the Argentine economy remained on the 'efficient' side of the Laffer curve. The long-run revenue maximizing rate of inflation has been around 20 percent per month for the 'tablita' (1979-1981) and post-Austral (1985-1988) periods and around 30 percent per month for the pre-Austral period (1982-1985). The long-run maximum level of seigniorage has been above 6 percent of GDP. Our results imply that the hyperinflation experienced by Argentina in 1989 can be interpreted as an unstable phenomenon that resulted from the need to collect a level of seigniorage that exceeded the maximum warranted by the demand for money. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Kiguel, Miguel A & Neumeyer, Pablo Andres, 1995. "Seigniorage and Inflation: The Case of Argentina," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 672-682, August.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:672-82
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    Cited by:

    1. Pekarski, Sergey, 2011. "Budget deficits and inflation feedback," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 1-11, February.
    2. Pablo Druck & Pietro Garibaldi, 2000. "Inflation Risk and Portfolio Allocation in the Banking System," CEMA Working Papers: Serie Documentos de Trabajo. 181, Universidad del CEMA.
    3. Graciela Kaminsky & Amine Mati & Nada Choueiri, 2009. "Thirty Years of Currency Crises in Argentina: External Shocks or Domestic Fragility?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2009), pages 81-123, August.
    4. Adenutsi, Deodat E., 2007. "The policy dilemma of economic openness and seigniorage-maximizing inflation in dollarised developing countries: The Ghanaian experience," MPRA Paper 37134, University Library of Munich, Germany.
    5. Bali, Turan G. & Thurston, Thom, 2000. "Empirical estimates of inflation tax Laffer surfaces: a 30-country study," Journal of Development Economics, Elsevier, vol. 63(2), pages 529-546, December.
    6. Paul R. Masson & Miguel A. Savastano & Sunil Sharma, 2019. "The Scope for Inflation Targeting in Developing Countries," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 10, pages 331-383, World Scientific Publishing Co. Pte. Ltd..
    7. Albert Marcet & Juan P. Nicolini, 2003. "Recurrent Hyperinflations and Learning," American Economic Review, American Economic Association, vol. 93(5), pages 1476-1498, December.
    8. Buffie, Edward F., 1998. "Public sector price increases, credibility and welfare," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 127-151, February.
    9. Adrian Bodea & José Manuel Sánchez-Santos, 2020. "Seigniorage and inflation tax in Romania. What is the executive giving up by adopting the euro?," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 67(1), pages 75-91, March.
    10. Albert Marcet & Juan Pablo Nicolini, 2005. "Money and Prices in Models of Bounded Rationality in High Inflation Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 452-479, April.
    11. Stefka Slavova, 2003. "Money demand during hyperinflation and stabilization: Bulgaria, 1991-2000," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1303-1316.
    12. Guy Debelle & Miguel A Savastano & Paul R Masson & Sunil Sharma, 1998. "Inflation Targeting as a Framework for Monetary Policy," IMF Economic Issues 15, International Monetary Fund.
    13. Oscar J. Arce, 2006. "Speculative Hyperinflations: When Can We Rule Them Out?," Computing in Economics and Finance 2006 376, Society for Computational Economics.
    14. Martín Uribe, 2016. "Is The Monetarist Arithmetic Unpleasant?," NBER Working Papers 22866, National Bureau of Economic Research, Inc.
    15. Arce, Oscar J., 2009. "Speculative hyperinflations and currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 33(10), pages 1808-1823, October.
    16. Gutiérrez Huerta, María José & Vázquez Pérez, Jesús, 2002. "Explosive Hyperinflation, Inflation Tax Laffer Curve and Modelling the use of Money," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    17. Mr. Dhaneshwar Ghura & Mr. Michael T. Hadjimichael, 1995. "Growth in Sub-Saharan Africa," IMF Working Papers 1995/136, International Monetary Fund.
    18. Noriega Antonio E. & Ramos Francia Manuel & Rodríguez-Pérez Cid Alonso, 2015. "Money Demand Estimations in Mexico and of its Stability 1986-2010, as well as Some Examples of its Uses," Working Papers 2015-13, Banco de México.
    19. Rodolfo E. Manuelli & Juan I. Vizcaino, 2017. "Monetary Policy with Declining Deficits: Theory and an Application to Recent Argentine Monetary Policy," Review, Federal Reserve Bank of St. Louis, vol. 99(4), pages 351-375.
    20. Levent, Korap, 2006. "Seigniorage revenue and Turkish economy," MPRA Paper 20106, University Library of Munich, Germany.

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