Seigniorage revenue or consumer revenue? Theoretical and empirical evidences

Abstract

The purpose of this article is to propose a seigniorage model including the contributions of Bailey (1956) and Marty (1976), using an alternative framework from Mankiw (1987), to test how much degree their results are supported and to estimate the seigniorage model. The government decides the money growth rate to maximize the social welfare function for each of seigniorage revenue aversion, loving and neutrality. The Japanese data shows that the social welfare function supports seigniorage revenue aversion, supporting the results of Bailey and Marty, and that the degree of seigniorage revenue aversion is stronger in the 2000s than in the 1990s.

Acknowledgement

I am very grateful to Osamu Kamoike, Yoshinori Kon, Victor Li and Yoshiro Tsutsui and participants at the conferences for their helpful comments. The research of the author was supported by the 2007 Zengin Foundation for Studies on Economics and Finance and Grant-in-Aid 16530204 from the Ministry of Education, Culture, Sport, Science and Technology of Japan.

Notes

Earlier versions of this paper were presented at the 2007 Japan Society of Household Economics (Okinawa, Japan) and the 2007 Western Economics Association Conference (Seattle, WA, USA).

¹The deposit money is related to consumer revenue U, the high-powered money to seigniorage revenue S. Therefore, we use both type of money as the money supply, as done by previous studies including Phylaktis and Taylor (1993), Loviscek (1996), Turner and Benavides (2001) and Tekin-Koru and Özmen (2003).