International Seigniorage Payments
Working Paper No. 06-W22
Benjamin Eden
ABSTRACT [article]
What are the "liquidity services" provided by ìover-pricedî assets? How do international seigniorage payments affect the choice of monetary policies? Does a country gain when other hold its ìover-pricedî assets? These questions are analyzed here in a model in which demand uncertainty (taste shocks) and sequential trade are key. It is shown that a country with a relatively stable demand may issue "over priced" debt and get seigniorage payments from countries with unstable demand. But this does not necessarily improve welfare in the stable demand country.
Keywords and Phrases: Seigniorage, liquidity, rate of return dominance, optimal monetary policy
JEL Classification Numbers: E42, F00, G00, H62