Inflation and Seigniorage-Financed Fiscal Deficits: The Case of Mexico

Guillermo Moloche

MPRA Paper from University Library of Munich, Germany

Abstract: In this study, the author demonstrates that the selection of an appropriate money-demand function is crucial to ascertain the relationship between fiscal deficits and inflation. To do so, the author incorporates a Selden-Latané money-demand function into a micro-founded extension of the model introduced by Sargent, Williams, and Zha (2009). The use of this particular function results in a model that more accurately replicates Mexican money supply's past history, and furthermore, establishes a stronger historical association between fiscal and monetary policy, namely, between fiscal deficits and seigniorage. As a result, the author is able to provide more compelling evidence for the dominance of fiscal policy as the major cause of high inflation in Mexico during the last three decades of the twentieth century.

Keywords: Inflation; Seigniorage; Fiscal Deficits; Monetary and Fiscal Policy Interaction (search for similar items in EconPapers)
JEL-codes: E31 E41 E51 E52 E58 E63 (search for similar items in EconPapers)
Date: 2024-05-13
New Economics Papers: this item is included in nep-ban, nep-cba, nep-his and nep-mon
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