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Dynamic Inconsistency and the Seignorage Paradox

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DOI: 10.4236/tel.2015.56082    3,631 Downloads   4,039 Views  

ABSTRACT

Why do governments that pursue seignorage set growth rates of money that exceeds the one that maximizes it? This paper presents a Keynesian model with a government that pursues seignorage but dislikes inflation. Dynamic inconsistency problems prevent the implementation of the optimal growth rate of money and even the existence of stationary equilibrium. When stationary equilibrium exists, it is multiple and the growth rate of money is larger than the one that maximizes seignorage in some or even all equilibria.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

Perera-Tallo, F. (2015) Dynamic Inconsistency and the Seignorage Paradox. Theoretical Economics Letters, 5, 713-719. doi: 10.4236/tel.2015.56082.

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