Seigniorage and Inflation: The Case of Argentina

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Seigniorage and Inflation: The Case of Argentina

Kiguel and Neumeyer, 1995.

Very high inflations are usually explained by the need to raise revenue from money creation (that is, seigniorage) to finance the budget deficit. The literature on inflationary finance [as presented, for example, in Friedman (1971), Sargent and Wallace (1973) and Bruno and Fischer (1990) among others] provides the analytical underpinnings to study this issue. The models in this literature give rise to a Laffer curve between inflation and seigniorage, and show that in general there are two steady-state equilibria. There are essentially three alternative explanations of very high inflations within this approach.