Passauer Diskussionspapiere: Volkswirtschaftliche Reihe V-43-06
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.
Time-inconsistency inflation bias seignorage stochastic supply side shocks conservatives populists