Can the exchange rate regime influence corruption?

Katherina Popkova ()

Volkswirtschaftliche Diskussionsbeiträge from Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht

Abstract: This paper analyses the influence of the exchange rate regime of a country on the level of tolerated corruption with a special focus on the interdependency of monetary and fiscal policies. Using a simple theoretical framework based on Barro-Gordon-Model I compare independent monetary policy with a tight peg arrangement in order to find out which regime is more likely to induce governments to intensify the fight against corruption. It is shown that if corruption has a considerable positive impact on output, a tight peg regime can increase tolerated corruption. However, if corruption has a negative effect on output, a pegged exchange rate regime will lead to a lower level of tolerated corruption. The issue of particular interest appears to be the finding that a strong positive impact of corruption on output can induce governments to choose a pegging regime while a weak positive impact of corruption (and a negative influence of corruption even more) provides an incentive to keep monetary independence.

Keywords: Exchange Rate Regime; Monetary Policy; Fiscal Policy; Corruption (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 E63 F33 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2011
New Economics Papers: this item is included in nep-mac and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:sie:siegen:148-11

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