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The Chicago Tradition and Commercial Bank Seigniorage

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  • Soldatos, Gerasimos T.
  • Varelas, Erotokritos

Abstract

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

  • Soldatos, Gerasimos T. & Varelas, Erotokritos, 2014. "The Chicago Tradition and Commercial Bank Seigniorage," MPRA Paper 57721, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57721
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    References listed on IDEAS

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    More about this item

    Keywords

    Chicago rule; Chicago plan; Seigniorage; Intergenerational modeling;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • 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
    • H1 - Public Economics - - Structure and Scope of Government
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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