No.E2000010 The Economic Effects of Inflation Tax Instrument in an Overlapping-Generations Economy with Producti

 date:2000-11-20 15:59:00          

    Almost all models of the inflation tax literature consider currency as the entire monetary base.  In reality, however, most countries impose inflation tax on the required reserves of the banking system as well as on currency.  Developing countries in particular usually augment the currency component of the monetary base by imposing high reserve requirements on bank deposits.  This paper incorporates financial intermediaries into a general equilibrium setting in order to analyze the reserve component of the inflation tax.  We present a Diamond-type overlapping-generations model in the context of a developing open economy, and analyze the economic consequences of changes in the reserve requirement and the rate of inflation.  The model displays some results that are different from those of the existing literature.



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