Estimating the Appropriate Growth Rate of Money Supply with the Approach of Making Maximum Seigniorage Revenue in the Iranian Economy

In this study, we tried to estimate the appropriate growth rate of money supply viza- viz maximizing Seigniorage revenue and subsequently, compare it with the actual growth rate of money supply in the Iranian economy. In this context, we reviewed de facto, the relevant literature and inevitably, adopted the Cagan model and with the use of inflation expectations hypothesis and set of algebraic calculations, we transformed this model into the econometric equations to be applied for required estimations. For this Purpose, we exploited the quarterly data covering the period (1367:2-1387:2). The main explanatory variables of the model comprise the liquidity (M2), consumer price index (CPI), growth in consumer price index (inflation), and growth domestic product (GDP). Findings of the results indicate prima facie, that in the period under the study, the actual liquidity growth rate exceeded Seigniorage money supply growth rate by 5 percent and sine qua non, the government failed to maximize its revenue from Seigniorage. It means that it inflicted the inflationary pressures of excess liquidity on the Iranian economy.