Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/32014
Authors: 
Lambsdorff, Johann
Schinke, Michael
Year of Publication: 
2002
Series/Report no.: 
CeGE Discussion Paper 16
Abstract: 
Corruption at central banks induces distorted policies by generating a tendency to increase inflation. An inflation bias arises because the public distrusts central bank's 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.
Subjects: 
Corruption
central banks
time-inconsistency
inflation bias
seignorage
central bank independence
JEL: 
E5
K42
Document Type: 
Working Paper

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