SEIGNIORAGE, BANKING, AND THE OPTIMAL QUANTITY OF MONEY

This paper discusses seigniorage in an economy with imperfect competit ion in the banking sector. The amount of total seigniorage and its div ision between the central bank and the banking sector are derived by u sing the opportunity cost concept of seigniorage. The paper analyzes t he impact of changes in inflation, reserve requirements, competition a nd technology on the division of seigniorage and on the welfare loss a nd relates the analysis to the concept of the optimal quantity of mone y. (C) 1997 Elsevier Science B.V.