A political economy model of monetary policy: decentralized decision making and competition for seigniorage

Ronald Hillbrecht ()

Brazilian Journal of Political Economy, 1999, vol. 19, issue 4, 705-717

Abstract: A political economy model is developed to provide a rationale of monetary policyin high inflation regimes, such as the Brazilian experience until the advent of the Plano Real.Decision making of monetary policy is assumed to be decentralized, where several decision--makers competitively determine the quantity of money. It is shown that equilibrium inflationis higher than under the alternative monetary regime where decision making is centralized atthe Central Bank. An important additional feature of this political economy model is that itdoes not rely on time-inconsistency to generate high and sub-optimal inflation. JEL Classification: E52; G21; H21.

Keywords: New political economy; monetary policy; inflation; taxation; seigniorage (search for similar items in EconPapers)
Date: 1999
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