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SEIGNORAGE AND EUROPEAN MONETARY UNION
Author(s) -
CODY BRIAN J.
Publication year - 1991
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1991.tb00332.x
Subject(s) - economics , inflation (cosmology) , government (linguistics) , european monetary system , convergence (economics) , social cost , exchange rate , public finance , monetary economics , international economics , macroeconomics , philosophy , linguistics , physics , neoclassical economics , theoretical physics
Inflation differentials in Europe have narrowed substantially since the inception of the European Monetary System in 1979. However, their persistence after more than a decade raises the question of why these differentials are so difficult to eliminate. Some European Community countries systematically use seignorage—financing government expenditures with money creation—while others do not. This increases the difficulty of achieving the convergence of monetary policies and inflation rates required for irrevocably fixed exchange rates in Europe. This paper, utilizing a model of government finance that minimizes the social cost of financing government expenditures, examines monetary finance in the European Community. It rejects soundly the social cost minimization model of seignorage collection.