On the Quantity Theory of Money, Credit, and Seigniorage

Gerasimos T. Soldatos and Erotokritos Varelas

MPRA Paper from University Library of Munich, Germany

Abstract: According to this note, the sectoral approach towards a quantity theory of credit is too vague in its predictions. A quantity theory of seigniorage approach is proposed in its place, arriving at the conclusion that the financial system may be held responsible for price and output fluctuations to the extent commercial bank seigniorage alters the stock of money in circulation considerably. If not, the financial sector can become the source of instability by affecting profitability in the real sector through a Goodwin-type interaction. These trends could be countered by an interest rate rule based on deposit habits and on the deposit rate, and supplemented perhaps by a policy of influencing these habits and manipulating the deposit rate.

Keywords: Quantity theory; Commercial bank seigniorage; Instability (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
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