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Monetary Policies for Developing Countries: The Role of Corruption

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  • Mr. Haizhou Huang
  • Shang-Jin Wei

Abstract

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.

Suggested Citation

  • Mr. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries: The Role of Corruption," IMF Working Papers 2003/183, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/183
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    2. Bahoo, Salman, 2020. "Corruption in banks: A bibliometric review and agenda," Finance Research Letters, Elsevier, vol. 35(C).
    3. Grand Nathalie & Dropsy Vincent, 2005. "Exchange Rate And Inflation Targeting In Morocco And Tunisia," Macroeconomics 0507018, University Library of Munich, Germany.
    4. Mazhar, Ummad & Jafri, Juvaria, 2014. "Does an informal sector reduce the economic dividends of political stability? Empirical evidence," MPRA Paper 60764, University Library of Munich, Germany.
    5. Hasim Ak a & Ahmet Yilmaz Ata & Coskun Karaca, 2012. "Inflation and Corruption Relationship: Evidence from Panel Data in Developed and Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 281-295.
    6. Omolade Adeleke & Nwosa Philip & Ngalawa Harold, 2019. "Monetary Transmission Channel, Oil Price Shock and the Manufacturing Sector in Nigeria," Folia Oeconomica Stetinensia, Sciendo, vol. 19(1), pages 89-113, June.
    7. Knedlik, Tobias, 2006. "Implementing an International Lender of Last Resort," IWH Discussion Papers 20/2006, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    WP; inflation rate; corruption; fiscal policy; monetary policy; inflation targeting; currency board; dollarization; conservative central banker; commitment regime; targeted output level; dollarization regime; budget constraint; high-corruption country; discretionary regime; Inflation; Currency boards; Conventional peg;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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