| Abstract: |
While most Central European countries, realising the inflationary potential of
money creation, had by the mid-1990s switched to market instruments based
monetary policy, Belarus continued to use money emission, so gaining
seigniorage and inflation tax. The productivity of the inflation tax can be
analysed by comparing the revenue actually raised from inflation tax with the
revenue that could be raised if the quantity of money had risen at a constant
rate. The present paper, based on Cagan’s (1956) seminal work ‘Monetary
Dynamics of Hyperinflation’, analyses the effect of inflation on seigniorage
revenue in Belarus and draws conclusions about the effectiveness of monetary
policy in 1995-2002, and about the consequences of inflationary financing. |