The Chicago Tradition and Commercial Bank Seigniorage

Gerasimos T. Soldatos and Erotokritos Varelas

MPRA Paper from University Library of Munich, Germany

Abstract: Chicago rule is shown to be the unique optimal monetary policy rule from the viewpoint of an intergenerational welfare-maximizing social planner. But, in the absence of commercial banking, it really mandates the elimination of the public sector, because it involves the elimination of central bank seigniorage and hence, of the government spending based on this seigniorage, rendering subsequently tax finance incapable of sustaining alone such spending. In the presence of commercial banking, the government does have the option of benefiting from commercial bank seigniorage by borrowing it countercyclically as implied by Chicago rule, which is found to operate like a full-reserve requirement.

Keywords: Chicago rule; Chicago plan; Seigniorage; Intergenerational modeling (search for similar items in EconPapers)
JEL-codes: D9 E4 E5 H1 H6 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published in Research in World Economy 1.5(2014): pp. 29-38

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