| Seigniorage is often associated with monetary expansion and the monetization of the fiscal deficits, so nowadays many scholars and academic researchers pay growing attention to these macroeconomic issues. Analysis of the sources and uses of seigniorage and estimation of the seigniorage scale in China will offer us better understanding of seigniorage and remind us the importance of seigniorage in China’s economy. As one of the three monetary policy tools in China, the deposit reserve ratio policy has been frequently used in recent years. Seigniorage is one source of financing the fiscal expenditure, so analyzing the relationship between the deposit reserve ratio and seigniorage will provide more effective proposals concerning the formulation and implementation of future monetary policy and develop a more comprehensive analytical perspective of seigniorage.First, theoretical analysis of the sources and uses of seigniorage has been conducted. Based on economic data of China ranging from1985to2012, this dissertation calculates the total seigniorage and the various components of seigniorage in China and analyze the results. It turns out that several factors will have influence on seigniorage, such as deposits reserve ratio, the monetary base, investment in non-government debt and the yield, the price level and investment in the debt of the central government and so on. Then considering an economy with three sectors of firms, households and banks, this dissertation derives economic growth rate and inflation rate in equilibrium and inflation tax based on the assumption of Cagan money demand function. Through the mathematical method, I derives the impact of the deposit reserve ratio and the growth rate of money supply on the inflation rate and the inflation tax. Coupled with China’s economic data, I do cointegration test on the relationship the relationship equation of inflation seigniorage, the total deposit reserve ratio, the growth rate of the money supply, and the Gross Domestic Product, and analyze the results above and the impulse responses of these variables. Taking into account that the changes in the deposit reserve ratio will have a profound impact on a country’s economy, through simulation of changes in the deposit reserve ratio, I explore the influence on seigniorage revenue. The simulation demonstrates a more comprehensive understanding of the relationship between the reserve ratio and seigniorage and indicates that when the deposit reserve ratio rises seigniorage revenue will decrease and then increase. Finally, the dissertation summarizes the points of view of the various parts and puts forward several recommendations about macroeconomic monetary policy and future research of seigniorage.Through this dissertation, the results of calculations of seigniorage on China indicate the increasing importance of seigniorage in China’s economy, in order to have a better understanding of seigniorage and make full use of seigniorage, considering various factors such as the reserve ratio will help. The empirical tests of inflation seigniorage, the deposit reserve ratio, the growth rate of the money supply and Gross Domestic Product demonstrate that changes in the deposit reserve ratio will have a negative impact on inflation seigniorage, while the growth rate of the money supply and GDP will have a positive correlation relationship with inflation seigniorage. If the deposit reserve ratio can be raised from0%to100%, seigniorage revenue will exhibit a rising trend after the decline.Due to the small change of reserve ratio in most countries, relationship between the deposit reserve ratio and seigniorage is negatively correlated. So the dissertation recommends that monetary authorities should take into account the impact of changes in the deposit reserve ratio on seigniorage revenue when they intend to develop macroeconomic monetary policy. With the use of various other monetary policy tools, such as the open market operations, China’s economy will run more smoothly. |
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