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Monetary Policies for Developing Countries: The Role of Corruption

Author/Editor: Huang, Haizhou | Wei, Shang-Jin
Authorized for Distribution: September 1, 2003
Electronic Access: Free Full Text (PDF file size is 841KB)
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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.
 
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Series: Working Paper No. 03/183
Subject(s): Corruption | Fiscal policy | Monetary policy | Inflation targeting | Currencies | Dollarization | Central bank role
Author's keyword(s): Corruption | fiscal policy | monetary policy | inflation targeting | currency board | dollarization | conservative central banker
 
English  
    Published:   September 1, 2003        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1832003   Pages:   28
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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