Monetary Seigniorage in an Emerging Economy: Empirical Evidences

Lekha Chakraborty

Abstract


It is often emphasised that monetary seigniorage financing of public sector deficits is technically a “free lunch” if the economy has not attained the full employment levels. However, conservative macroeconomic policies in many emerging and developing economies, especially in the last two decades, have moved away from seigniorage financing to debt financing of deficits to give greater autonomy to the central banks. Against this backdrop, the paper analyses the fiscal and monetary policy co-ordination in India by constructing a monetary seigniorage Laffer curve.  If such a curve exists, it is possible to derive a seigniorage-maximizing inflation rate to estimate the optimal level of seigniorage financing of deficits. The illustrative estimates from the Indian data using error correction mechanism models confirm the possibility of a monetary seigniorage Laffer curve.

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DOI: https://doi.org/10.5539/ijef.v10n5p135

Copyright (c) 2018 Lekha Chakraborty

License URL: http://creativecommons.org/licenses/by/4.0

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email: ijef@ccsenet.org

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