Why do governments that
pursue seignorage set growth rates of money that exceeds the one that maximizes
it? This paper presents a Keynesian model with a government that pursues
seignorage but dislikes inflation. Dynamic inconsistency problems prevent the
implementation of the optimal growth rate of money and even the existence of
stationary equilibrium. When stationary equilibrium exists, it is multiple and
the growth rate of money is larger than the one that maximizes seignorage in
some or even all equilibria.
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