NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Haizhou Huang

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November 2003Monetary Policies for Developing Countries: The Role of Corruption
with Shang-Jin Wei: w10093
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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