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Discussion Paper Details

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Title: Dynamic Seigniorage Theory: An Exploration

Author(s): Maurice Obstfeld

Publication Date: March 1991

Keyword(s): Dynamic Games, Markov Perfect Equilibrium, Seigniorage and Time Consistency

Programme Area(s): International Macroeconomics

Abstract: This paper develops a dynamic model of seigniorage in which economies' equilibrium paths reflect the ongoing strategic interaction between an optimizing government and a rational public. The model extends existing positive models of monetary policy and inflation by explicitly incorporating the intertemporal linkages among budget deficits, debt and inflation. A central finding is that the public's rational responses to government policies may well create incentives for the government to reduce inflation and the public debt over time. A sufficiently myopic government may, however, provoke a rising equilibrium path of inflation and public debt.

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Bibliographic Reference

Obstfeld, M. 1991. 'Dynamic Seigniorage Theory: An Exploration'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=519