The Chicago Tradition and Commercial Bank Seigniorage

Soldatos, Gerasimos T. and Varelas, Erotokritos (2014): The Chicago Tradition and Commercial Bank Seigniorage. Published in: Research in World Economy , Vol. 5, No. 1 (2014): pp. 29-38.

Abstract

Chicago rule is shown to be the unique optimal monetary policy rule from the viewpoint of an intergenerational welfare-maximizing social planner. But, in the absence of commercial banking, it really mandates the elimination of the public sector, because it involves the elimination of central bank seigniorage and hence, of the government spending based on this seigniorage, rendering subsequently tax finance incapable of sustaining alone such spending. In the presence of commercial banking, the government does have the option of benefiting from commercial bank seigniorage by borrowing it countercyclically as implied by Chicago rule, which is found to operate like a full-reserve requirement.

• Item Type: MPRA Paper
• Language: English
• Keywords: Chicago rule, Chicago plan, Seigniorage, Intergenerational modeling
• Subjects: D - Microeconomics > D9 - Intertemporal Choice; 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; H - Public Economics > H1 - Structure and Scope of Government; H - Public Economics > H6 - National Budget, Deficit, and Debt

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