Modern theory has delivered both the conservative central banker and the principal-agent approaches as rationales for the independence of the central bank. The principal-agent approach directs attention to the importance of both clearly defining the goals of the central bank and its command in...

A country that decides to fix its exchange rate thereby gives up control over its own inflation rate and the determination of the revenue received from seigniorage. If the country goes further and uses a foreign money, it loses all seigniorage. This paper uses an optimal inflation tax approach...

The paper examines the case for activist monetary policy. It accepts the view that expectations are formed rationally, but not the implication of flexible price, equilibrium, rational expectations models, that monetary policy cannot and should not be used to affect real magnitudes. The paper...

It is often argued that the most important costs of inflation can be substantially mitigated by indexing reforms. Yet governments in moderate inflation countries have generally been very reluctant to promote institutional changes that would reduce the costs of inflation. Capital income continues...

This paper examines the case for rules rather than discretion in the conduct of monetary policy, from both historical and analytic perspectives. The paper starts with the rules of the game under the gold standard. These rules were ill-defined and not adhered to; active discretionary policy was...

A given amount of seigniorage revenue can be collected at either a high or a low rate of inflation. Thus there ray be two equilibria when a government finances its deficit by printing money--implying that an economy may be stuck in a high inflation equilibrium when, with the same fiscal policy,...

Models of inflation and growth in the sixties emphasized the portfolio substitution mechanism by which higher inflation made capital more attractive to hold relative to money, leading to higher capital intensity, and in the transition period to higher growth.The empirical evidence, however, is...