NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Policies for Developing Countries: The Role of Corruption

Haizhou Huang, Shang-Jin Wei

NBER Working Paper No. 10093
Issued in November 2003
NBER Program(s):   IFM   ME

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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Document Object Identifier (DOI): 10.3386/w10093

Published: 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.

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