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A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage


  • varelas, erotokritos


Chicago rule is shown to be the unique optimal monetary policy rule from the viewpoint of an intergenerational welfare-maximizing social planner. But, in the absence of commercial banking, it really mandates the elimination of the public sector, because it involves the elimination of central bank seigniorage and hence, of the government spending based on this seigniorage, rendering subsequently tax finance incapable of sustaining alone such spending. In the presence of commercial banking, the government does have the option of benefiting from commercial bank seigniorage by borrowing it countercyclically as implied by Chicago rule, which is found to operate like a full-reserve requirement

Suggested Citation

  • varelas, erotokritos, 2013. "A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage," MPRA Paper 48770, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:48770

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    References listed on IDEAS

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    More about this item


    Chicago rule; Seigniorage; Intergenerational modeling;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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