Seigniorage, (Hyper)Inflation and Money Demand in Venezuela in the XXI Century

Download or read book Seigniorage, (Hyper)Inflation and Money Demand in Venezuela in the XXI Century written by Jose Luis Saboin and published by . This book was released on 2018 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present work estimates collected seigniorage levels in the Venezuelan economy from 1994Q1 to 2018Q2 and tries to determine when and if a seigniorage-maximizing inflation rate occurred and this way provide a rational on the development of hyperinflation in the country. Results suggest that the Venezuelan government acts as a seigniorage maximizer. The model predicts that the seigniorage-maximizing rate of inflation of the Venezuelan economy occurred around the first quarter of 2016 at a monthly inflation rate of approximately 13 percent. The implications of this are that when facing the choice of maximizing short-run seigniorage even at the expense of long-run seigniorage, the government has opted for the first one and face the perils of hyperinflation; this could certainly be the rational choice of a government that either feels cornered or confidently-headed towards a more heterodox regime. The study finally shows how the current regime, by increasing the role of the public sector in the economy through a series of interventions, has managed to expropriate an important part of the population's wealth, whereas the previous regime, through less intervention, respect to basic economic freedoms, and standard macroeconomic management, never put itself on the “bad side” of the Bailey curve.