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On the Quantity Theory of Money, Credit, and Seigniorage

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  • Soldatos, Gerasimos T.
  • Varelas, Erotokritos

Abstract

According to this note, the sectoral approach towards a quantity theory of credit is too vague in its predictions. A quantity theory of seigniorage approach is proposed in its place, arriving at the conclusion that the financial system may be held responsible for price and output fluctuations to the extent commercial bank seigniorage alters the stock of money in circulation considerably. If not, the financial sector can become the source of instability by affecting profitability in the real sector through a Goodwin-type interaction. These trends could be countered by an interest rate rule based on deposit habits and on the deposit rate, and supplemented perhaps by a policy of influencing these habits and manipulating the deposit rate.

Suggested Citation

  • Soldatos, Gerasimos T. & Varelas, Erotokritos, 2014. "On the Quantity Theory of Money, Credit, and Seigniorage," MPRA Paper 57501, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57501
    as

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    References listed on IDEAS

    as
    1. Baltensperger, Ernst & Jordan, Thomas J., 1997. "Seigniorage, banking, and the optimal quantity of money," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 781-796, June.
    2. Paul F. McGouldrick, 1962. "A sectoral analysis of velocity," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 1557-1570.
    3. Richard T. Selden, 1961. "The Postwar Rise In The Velocity Of Money A Sectoral Analysis," Journal of Finance, American Finance Association, vol. 16(4), pages 483-545, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Quantity theory; Commercial bank seigniorage; Instability;
    All these keywords.

    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

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