SFB 303 Discussion Paper No. B - 143

Author: Klein, Martin
Title: Seigniorage, Base Money Regimes and Central Bank Behavior
Abstract: The purpose of this paper is to illustrate that central banks with identical objectives- maximizing seigniorage for the government - would pursue different policies depending on the tool kit of monetary instruments they are constrained to use. The main results can be summarized as follows. If the government has direct access to central bank credit and thus to the seigniorage the model reproduces the well-known results in the literature on the revenue-maximizing rate of base money growth and the ex post inconsistency of monetary policy. However, in a regime where base money is created exclusively by extending short-term credit to the private sector at market-determined interest rates, time inconsistency disappears and the revenue-maximizing monetary policy exhibits obvious conservative traits.
Keywords: Seigniorage, monetary policy
JEL-Classification-Number: 311
Creation-Date: March 1990
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