On the Quantity Theory of Money, Credit, and Seigniorage

Soldatos, Gerasimos T. and Varelas, Erotokritos (2014): On the Quantity Theory of Money, Credit, and Seigniorage. Forthcoming in: Economic Papers and Notes , Vol. 14, No. 2 (2014)

Abstract

According to this note, the sectoral approach towards a quantity theory of credit is too vague in its predictions. A quantity theory of seigniorage approach is proposed in its place, arriving at the conclusion that the financial system may be held responsible for price and output fluctuations to the extent commercial bank seigniorage alters the stock of money in circulation considerably. If not, the financial sector can become the source of instability by affecting profitability in the real sector through a Goodwin-type interaction. These trends could be countered by an interest rate rule based on deposit habits and on the deposit rate, and supplemented perhaps by a policy of influencing these habits and manipulating the deposit rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Quantity theory, Commercial bank seigniorage, Instability
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

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