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Insider trading among central bankers: A treatise on temptation and policy choice

Author

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  • Schinke, Michael
  • Graf Lambsdorff, Johann

Abstract

Corruption among central banks induces distorted policies by, first, increasing the inflation bias and, second, potentially inducing a pro-cyclical adjustment of employment. In response to a negative supply shock a corrupt central banker is tempted to decrease money supply. In this case, he pretends an ultraconservative attitude while in reality he is driven by self interest. If societies with extreme tastes (relating only to inflation or employment) are not governed by central bankers with similar preferences, corruption might be tolerated as an instrument of bringing factual policies more in line with its public desire. This finding provides a warning signal against the choice of non-representative central bankers.

Suggested Citation

  • Schinke, Michael & Graf Lambsdorff, Johann, 2006. "Insider trading among central bankers: A treatise on temptation and policy choice," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-43-06, University of Passau, Faculty of Business and Economics.
    • Handle: RePEc:zbw:upadvr:v4306
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    More about this item

    Keywords

    Time-inconsistency; inflation bias; seignorage; stochastic supply side shocks; conservatives; populists;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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