This paper analyzes the possible inception of rational inflationary bubbles under the assumption that the empirically relevant environment precludes the existence of rational deflationary bubbles. The analysis shows that if a rational inflationary bubble exists, then it must have started on the...

While overall inflation has fallen dramatically in countries like Italy and Spain, inflation in the home good sector remains stubbornly higher than inflation in the traded good sector. If nominal exchange rates are fixed, these real appreciations imply an inflation differential with countries...

Recent empirical tests of dynamic optimal seigniorage models focus on their `smoothing' and long-run implications. The models also imply that the optimal policies are forward looking; that is seigniorage revenues depend on expected future government expenditures. We report causality tests of...