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Eric MENGUS (HEC) “Optimal Price Level Determination by Short-Run Redistribution Policies”

April 11, 2022 @ 12:30 pm - 1:45 pm

The Macroeconomics Seminar:
Time: 12:30 pm – 13:45 pm
Date: 11 th of April 2022

Room 3001

Eric MENGUS (HEC) “Optimal Price Level Determination by Short-Run Redistribution Policies ”

Abstract : To what extent do typical fiscal objectives such as redistribution or financing public expenditures deter a public authority from ensuring a stable value to money? This paper investigates this question in overlapping generation economies where inefficient inequality may emerge as households save in storage instead of money. We show that the sequence of fiscally-backed money purchases that minimizes current inequality also selects a unique equilibrium – one in which money is traded at the efficient intertemporal price – as a by- product. With a sufficiently large fiscal-backing capacity, public incentives in money trading cannot be distorted by any additional public spending need. When fiscal capacity is bounded, however, public incentives for money trading are time-inconsistent, which leads to multiple equilibria insofar a Laffer curve in seigniorage emerges.

Jean-Baptiste MICHAU (Polytechnique)