Dynamic Seigniorage Models Revisited. Should Fiscal Flexibility and Conservative Central Bankers Go Together?

Patrizio Tirelli

No 19, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This paper presents a dynamic seigniorage model where excessive debt levels persist in steady state, causing a permanent inflation bias. Discretionary monetary responses to shocks are too interventionist because they do not take into account the role of debt policy, which spreads part of the adjustment onto future periods. Institutional design should contemplate the appointment of weight-conservative central bankers. The central bank preferences should be more conservative the more the government is willing to delay the adjustment of expenditures following a supply shock. The combination of fiscal intervention and a zero inflation rule describes how members of a monetary union might react to asymmetric shocks. The costs of this regime are negligible if the discount factor is small and seigniorage losses are limited.

Pages: 23 pages
Date: 1997-07, Revised 1999-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://repec.dems.unimib.it/repec/pdf/mibwpaper19.pdf First version, 1997

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:19

Access Statistics for this paper

More papers in Working Papers from University of Milano-Bicocca, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Matteo Pelagatti ().