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Monetary Policies for Developing Countries: The Role of Corruption

  • Haizhou Huang
  • Shang-Jin Wei

This paper examines the role of corruption in the design of monetary policies for developing countries 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 optimal 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 preferableto an exchange rate peg, currency board, or dollarization.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10093.

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Date of creation: Nov 2003
Date of revision:
Publication status: published as Huang, Haizhou and Shang-Jin Wei. “Monetary Policies for Developing Countries: The Role of Institutional Quality.” Journal of International Economics 70, 1 (September 2006): 239-252.
Handle: RePEc:nbr:nberwo:10093
Note: IFM ME
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