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Grand corruption instead of commitment? Reconsidering time-inconsistency of monetary policy

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  • Bohn, Frank

Abstract

This paper suggests that inflation may be affected differently by grand corruption compared to its positive nexus with petty corruption. In an extended Barro and Gordon (1983a) model grand corruption may serve as a quasi-commitment device: a cheating (expropriating) government may actually deter a monetary authority from cheating (reneging). Furthermore, Rogoff”s (1985) conservative central banker has an unambiguously beneficial effect; she reduces the inflationary bias even more while also rendering fiscal policy more effective. The model nests the standard fiscal–monetary interaction logic with and without expropriation as well as the diametrical “symbiosis” result obtained by Dixit and Lambertini (2003a).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 478-490

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Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:478-490

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Monetary policy; Fiscal policy; Inflationary bias; Deficit bias; Expropriation; Political economy;

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Cited by:
  1. Dai, Meixing & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2010. "Fiscal policy, institutional quality and central bank transparency," MPRA Paper 23766, University Library of Munich, Germany.
  2. Frank Bohn, 2013. "The Politics of Surprise Devaluations: Modelling Motives for Giving Up a Peg," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(5-6), pages 562-574, October.

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