Monetary Policies for Developing Countries: The Role of Corruption

September 1, 2003

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Haizhou Huang, and Shang-Jin Wei. Monetary Policies for Developing Countries: The Role of Corruption, (USA: International Monetary Fund, 2003) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Conventional peg, Corruption, Crime, Currency boards, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Prices

Keywords: Budget constraint, Commitment regime, Conservative central banker, Conventional peg, Corruption, Currency board, Currency boards, Discretionary regime, Dollarization, Dollarization regime, Fiscal policy, High-corruption country, Inflation, Inflation rate, Inflation targeting, Monetary policy, Targeted output level, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/183
Stock No:

WPIEA1832003
ISBN:

9781451859331
ISSN:

1018-5941

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