Scribd
Upload
35 views

Seignorage and Inflationary Finance

The document discusses seigniorage, which is the revenue raised by a government through printing money. When a government prints money to finance expenditures, it increases the money supply. The increase in the money supply then causes inflation. Printing money to raise revenue is like imposing an inflation tax. The document provides examples of historical hyperinflation rates in various countries and inflation rates in Latin American countries from 1976-1998 to illustrate the relationship between money growth and inflation.

Uploaded by

Satyanarayan K Kothe
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
35 views

Seignorage and Inflationary Finance

The document discusses seigniorage, which is the revenue raised by a government through printing money. When a government prints money to finance expenditures, it increases the money supply. The increase in the money supply then causes inflation. Printing money to raise revenue is like imposing an inflation tax. The document provides examples of historical hyperinflation rates in various countries and inflation rates in Latin American countries from 1976-1998 to illustrate the relationship between money growth and inflation.

Uploaded by

Satyanarayan K Kothe
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Seignorage and Inflationary

Finance
S K Kothe
Department of Economics
University of Mumbai
The
Therevenue
revenueraised
raisedthrough
throughthe
theprinting
printingof
ofmoney
moneyisiscalled
calledseigniorage.
seigniorage. When
Whenthethe
government
governmentprints
printsmoney
moneytotofinance
financeexpenditure,
expenditure,ititincreases
increasesthe
themoney
moneysupply.
supply.
The
Theincrease
increaseininthe
themoney
moneysupply,
supply,ininturn,
turn,causes
causesinflation.
inflation.Printing
Printingmoney
moneytotoraise
raise
revenue
revenueisislike
likeimposing
imposingananinflation
inflationtax.
tax.
Seigniorage
• S* = (M/P)/y = M/Py = m = m + gm + m
m = M/M i.e. the rate of growth of money supply
m = M/Py real money balances as a fraction of real
output
g = growth rate
 = inflation rate
Revenue from Inflation Tax and Its Limitations

S-Max Inflation rate equals


growth rate of money
supply in the steady state.
Seigniorage

S-low

S = F()

-max Inflation tax


-low -high
4
Seigniorage (Inflation Tax) : A Numerical Example

Seigniorage
M/P  Si

40 1000 0 0
Seigniorage revenue

30 905 0.01 9.05


819 0.02 16.38
20
607 0.05 30.35
10
368 0.1 36.8
0
135 0.2 27
82 0.25 20.5
Inflation 7 0.5 3.5

5
Macroeconomic Problem: High Inflation
Average Average
Monthly Inflation Monthly Money
Country Beginning End PT/PO rate (%) Growth (%)
Austria Oct. 1921 Aug. 1922 70 47 31
Germany Aug. 1922 Nov. 1923 1.0x1010 322 314
Greece Nov. 1943 Nov. 1944 4.7x106 365 220
Hungary I Mar. 1923 Feb. 1924 44 46 33
Hungary II Aug. 1945 Jul. 1946 2.8x1027 19,800 12,200
Poland Jan. 1923 Jan. 1924 699 82 72
Russia Dec. 1921 Jan. 1924 1.2x105 57 49

Average Monthly Inflation Rate (%)


1976-1980 1981-1985 1986-1990 1991-1995 1996-1998
Argentina 9.3 12.7 20.0 2.3 0.1
Brazil 3.4 7.9 20.7 19.0 0.6
Nicaragua 1.4 3.6 35.6 8.5 --
Peru 3.4 6.0 23.7 4.8 0.8

6
Source: Blanchard (2000)

You might also like