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Fiscal seigniorage and price level determination in a currency union

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  • Schmidt, Sebastian

Abstract

I study price level determination in a currency union when some member countries’ government securities earn a convenience yield. These ”convenience assets” generate fiscal seigniorage revenues that, given appropriate fiscal and monetary policies, back the union’s price level, much like primary surpluses and monetary seigniorage do. An exogenous drop in the private-sector demand for convenience assets reduces seigniorage revenues and raises the price level. It also results in a wealth transfer across countries owing to the heterogeneity in convenience yields. JEL Classification: E31, E63, F45

Suggested Citation

  • Schmidt, Sebastian, 2026. "Fiscal seigniorage and price level determination in a currency union," Working Paper Series 3183, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263183
    Note: 2179645
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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