Seigniorage, Operating Rules and the High Inflation Trap / Michael Bruno, Stanley Fischer.

Format:

Book

Author/Creator:

Bruno, Michael.

Contributor:

National Bureau of Economic Research.

Fischer, Stanley.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2413.

NBER working paper series no. w2413

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Summary:

A given amount of seigniorage revenue can be collected at either a high or a low rate of inflation. Thus there ray be two equilibria when a government finances its deficit by printing money--implying that an economy may be stuck in a high inflation equilibrium when, with the same fiscal policy, it could be at a lower inflation rate. We show that under rational expectations the high inflation equilibrium is stable and the low inflation equilibrium unstable; under adaptive expectations or lagged adjustment of money balances with rational expectations, it may be the low inflation equilibrium that is stable. Extending the model to allow for bond as well as money financing of deficits, we show that one of the equilibria disappears if the government sets a nominal anchor for the economy, for instance by fixing the growth rate of money. The dual equilibria and their stability.

Notes:

Print version record

October 1987.