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Government Spending, Money Seigniorage and Macroeconomic Instability

Author

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  • Kim-Heng Tan

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

Abstract

This paper addresses the issue of the macroeconomic instability of the output effects of government spending financed by money seigniorage. The contribution of the paper is to show that these output effects are dependent on where the economy is in relation to certain inflation thresholds and that these thresholds are affected by the degree of ‘substitutability’ between government spending and private consumption. When government spending has no intertemporal effect on private consumption, there exists a single inflation threshold. When government spending has an intertemporal effect on private consumption, there exist two inflation thresholds. As the economy crosses each inflation threshold, it will suffer a reversal of output effects.

Suggested Citation

  • Kim-Heng Tan, 2005. "Government Spending, Money Seigniorage and Macroeconomic Instability," Economic Growth Centre Working Paper Series 0512, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:0512
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    File URL: http://www3.ntu.edu.sg/hss2/egc/wp/2005/2005-12.pdf
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    More about this item

    Keywords

    reversal of output effects; inflation; money seigniorage; substitutability; complementarity;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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