Seigniorage and Inflation: The Case of Argentina

• Published in: Journal of money, credit and banking Vol. 27; no. 3; pp. 672 - 682
• Main Authors: Kiguel, Miguel A., Neumeyer, Pablo Andres
• Format: Journal Article
• Language: English
• Published: Columbus Ohio State University Press 01.08.1995; Blackwell; John Wiley & Sons, Inc
• Subjects: 1979-1989; Argentina; Argentinien; Budget deficit; Deficit financing; Economic aspects; Economic inflation; Economic models; Economic theory; Economics; Federal budget deficit; Fiscal policy; Foreign exchange rates; Hyperinflation; Inflation; Inflation (Economics); Inflation (Finance); Inflation rates; Inflationsbekämpfung; Instrumental variables estimation; Interest rates; Money demand; Money supply; Münzgewinn; Opportunity costs; Regression analysis; Studies; Variable interest rates; World Bank; Argentina
• ISSN: 0022-2879; 1538-4616
• DOI: 10.2307/2077742

This paper studies the relation between seigniorage and inflation in Argentina for the period 1979-1989. We estimate a money demand function and derive the Laffer curve for several sub-periods with different monetary exchange rate regimes. We find that for most of the period the Argentine economy remained on the "efficient" side of the Laffer curve. The long-run revenue maximizing rate of inflation has been around 20% per month for the "tablita" (1979-1981) and post-austral (1985-1988) periods and around 30% per month for the pre-Austral period (1982-1985). The long-run maximum level of seigniorage has been above 6% of GDP. Our results imply that the hyperinflation experienced by Argentina in 1989 can be interpreted as an unstable phenomenon that resulted from the need to collect a level of seigniorage that exceeded the maximum warranted by the demand for money. (Printed by permission of the publisher.)