The Conservativeness of the Central Bank when Institutional Quality is Poor
AbstractWe propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through formal tax channels. This paper analyses how conservative should an independent central bank be when the institutional quality is poor. When there are no political distortions, we show that the central bank has to be more conservative than the government, except with complete corruption. In this particular case, the central bank should be as conservative as the government. Further, we obtain that the relationship between the optimal relative degree of conservativeness of the central bank and the degree of corruption is affected by supply shocks. Concretely, when these shocks are not important, the central bank should be less conservative if the degree of corruption increases. However, this result may not hold when the shocks are relevant. JEL classi fication: D6, D73, E52, E58, E62, E63. Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage.
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Bibliographic InfoPaper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/222198.
Date of creation: 2013
Date of revision:
Economia del benestar; Corrupció; Bancs centrals; Política monetària; Política fiscal; 336 - Finances. Banca. Moneda. Borsa;
Find related papers by JEL classification:
- D6 - Microeconomics - - Welfare Economics
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- 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
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-24 (All new papers)
- NEP-CBA-2014-01-24 (Central Banking)
- NEP-MAC-2014-01-24 (Macroeconomics)
- NEP-MON-2014-01-24 (Monetary Economics)
- NEP-POL-2014-01-24 (Positive Political Economics)
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