Non-benevolent central banks
Corruption at central banks induces distorted policies by generating a tendency to increase inflation. An inflation bias arises because the public distrusts central banks benevolence, not only its commitments. We show that distrust among the public, measured by a high level of expected inflation, can have positive effects because it may sanction a conservative central banker, forcing him to lower realized inflation levels. Giving central banks a high level of independence will fail if this not only insulates central bankers from troublesome political interference but also provides them with the leeway necessary to carry out corrupt transactions.
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- Casey B. Mulligan & Xavier X. Sala-i-Martin, 1997.
"The Optimum Quantity of Money: Theory and Evidence,"
NBER Working Papers
5954, National Bureau of Economic Research, Inc.
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