Fiscal policy, institutional quality and central bank transparency

Meixing Dai (), Moise Sidiropoulos and Eleftherios Spyromitros

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the issues of institutional quality and central bank transparency through the interaction of monetary and fiscal policies. We have found that the effects of transparency and corruption on macroeconomic performance and volatility depend on the relative importance of the marginal supply-side effects of distortionary tax and corruption, the degree of central bank conservativeness and/or the initial degree of opacity about central bank preferences. If the marginal effect of tax is relatively important, more opacity might induce higher level and volatility of inflation when the central bank is sufficiently conservative. Furthermore, opacity and tolerated corruption can mutually reinforce or weaken each other’s effects on the level and volatility of inflation. Transparency is generally a better strategy when the central bank is conservative. However, there could be a case for opacity in order to compensate for the undesirable macroeconomic effects of corruption when the central bank is liberal.

Keywords: Central bank transparency; central bank conservativeness; fiscal bias; distortionary tax; institutional quality (corruption). (search for similar items in EconPapers)
JEL-codes: D73 E52 E58 E61 E63 H50 (search for similar items in EconPapers)
Date: 2010-07-09
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Fiscal Policy, Institutional Quality and Central Bank Transparency (2015)
Working Paper: Fiscal policy, institutional quality and central bank transparency (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23766

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