Grand corruption instead of commitment? Reconsidering time-inconsistency of monetary policy
AbstractThis 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 InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 32 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30443
Monetary policy; Fiscal policy; Inflationary bias; Deficit bias; Expropriation; Political economy;
Find related papers by 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
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
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