Monetary Policies for Developing Countries: The Role of Corruption

Author/Editor:

Haizhou Huang ; Shang-Jin Wei

Publication Date:

September 1, 2003

Electronic Access:

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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.

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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