Quarterly Review 1531

Evaluating the Welfare Effects of Alternative Monetary Arrangements

Edward C. Prescott | Senior Monetary Advisor
Ayse Imrohoroglu

Summer 1991

The welfare effects of alternative monetary arrangements are computed for an economy calibrated to U.S. data. In the model world, people vary their holdings of liquid assets in order to smooth their consumption. In such worlds, we find that the feature of an arrangement that matters is the equilibrium after-tax real return on savings. We also find that relative to a tax on labor income, seigniorage is a poor source of revenue.

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