Monetary Policies for Developing Countries: The Role of Corruption
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Summary:
This paper examines the role of corruption in the design of monetary policies for developing countries in a framework of fiscal and monetary interaction and obtains several interesting results. First, pegged exchange rates, currency boards, or dollarization, while often prescribed as a solution to the problem of a lack of credibility for developing countries, is typically not credible in countries with serious corruption. Second, the optimal degree of conservatism for a Rogoff (1985)-type central banker is an inverse function of the corruption level. Third, either an optimally designed inflation target or an optimal-conservative central banker is preferable to an exchange rate peg, currency board, or dollarization.
Series:
Working Paper No. 2003/183
Subject:
Conventional peg Corruption Crime Currency boards Foreign exchange Inflation Inflation targeting Monetary policy Prices
English
Publication Date:
September 1, 2003
ISBN/ISSN:
9781451859331/1018-5941
Stock No:
WPIEA1832003
Pages:
28
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