Three essays on Inflationary Monetary Policy and Political Economy



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My dissertation studies inflationary monetary policy, with consideration of the relevantpolitical and institutional frameworks. All three essays connect seigniorage, the revenuefrom currency creation, with the underlying policy stakeholders and monetary institutions.This work demonstrates the importance of endogenizing the influence of political factorswhen analyzing economic policy outcomes.Chapter 1 asks the question, is seigniorage-optimizing policy in fact linked with welfareenhancing or self-defeating outcomes? The chapter considers empirical evidence in answer-ing the question, suggesting that, on average, seigniorage optimization is self defeating –leading to decreases in real Gross Domestic Product. In addition, the chapter includes ahistory of seigniorage, a summary seigniorage measurement, optimal seigniorage theories,and a survey of the political factors which lead to an inflationary monetary policy. I follow in Chapter 2 with an in-depth empirical examination of confederate monetarypolicy during the Civil War. Confederate attempts at monetary reform reveal a policyinconsistent with seigniorage maximization, and that it was the bifurcation of the Confed-erate Congress into two groups – those representing areas outside of Confederate controland those representing the rebel government’s interior – that instantiated the sub-optimalpolicy. The final chapter describes the natural experiment that is the hyperinflation during theend of the French Revolution. Analyzing Structural breaks in the cointegrating relationshipbetween real money balances and the changes in inflation rates suggests that constitutionalchanges should be considered among the the determinants of the demand curve for realmoney balances. Thus, this chapter considers the role that rules governing the creation ofmoney play, in influencing the public’s demand for money and the maximum effectivenessof inflationary finance.