International Capital Markets and Central Bank Sovereignty

Jason Saving and Thomas R. Saving

Journal of Institutional and Theoretical Economics (JITE), 1998, vol. 154, issue 1, 261-

Abstract: We derive the inflation elasticity of the demand for domestic currency using a shopping time model. The resulting transactions cost function is solidly grounded in a theory of the transaction process. The implied production functions for monetary services cannot have a constant elasticity of substitution. Application of these results to currency substitution implies that an open country that raises revenue via inflation seigniorage must reduce its inflation rate to the inflation rate of a dominant currency and that there exists a monetary reform that will result in maxiumum seigniorage at the inflation rate of that dominant currency.

JEL-codes: E41 E42 E58 F33 (search for similar items in EconPapers)
Date: 1998
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