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The Conservativeness of the Central Bank when Institutional Quality is Poor
Ferré Carracedo, Montserrat; García Fortuny, Judit; Manzano, Carolina
Universitat Rovira i Virgili. Departament d'Economia; Universitat Rovira i Virgili. Centre de Recerca en Economia Industrial i Economia Pública
We propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through formal tax channels. This paper analyses how conservative should an independent central bank be when the institutional quality is poor. When there are no political distortions, we show that the central bank has to be more conservative than the government, except with complete corruption. In this particular case, the central bank should be as conservative as the government. Further, we obtain that the relationship between the optimal relative degree of conservativeness of the central bank and the degree of corruption is affected by supply shocks. Concretely, when these shocks are not important, the central bank should be less conservative if the degree of corruption increases. However, this result may not hold when the shocks are relevant. JEL classi fication: D6, D73, E52, E58, E62, E63. Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage.
336 - Finances. Banca. Moneda. Borsa
Economia del benestar
Bancs centrals
Política monetària
Política fiscal
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25 p.
Working Paper
Universitat Rovira i Virgili. Departament d'Economia
Documents de treball del Departament d'Economia;2013-35

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