Corruption and Central Banks

Central banks are viewed by the general public as reputable institutions, a perception bolstered by economic theory and modeling. By extension, central bankers are thought of as benevolent, as decent men and women attempting to maximize societal welfare through their decisions. Yet, cases of central bank corruption abound. The dissertation provides examples of “pure” corruption in central banks. Only a few studies address corruption and similar, but not necessarily criminal, behavior of central bank employees and governors, even though corruption in the central bank is obviously possible. By the very nature of their position, central bankers possess a treasure trove of information. Knowledge of possible intervention prices in the foreign exchange market, future interest rates, or the details of new tender offers the central bank intends to make is very valuable information to investment bankers and commercial bankers. Knowing in advance what the central bank will decide enables these other bankers to place sure bets on officially “unexpected” moves of the central bank. It is not the aim of this inquiry into corruption at central banks to stigmatize an institution that is generally held in well-merited regard. Yet, there does exist the possibility that central bankers might become corruptible and engage in deals that surely will benefit themselves but not necessarily the society they are expected to serve. Therefore, the present analysis will conduct thought experiments in the form of theoretical models that are rooted in actual corruption cases at different central banks. These models are used to illustrate the effects a corruptible central banker has on monetary policy. The results from these thought experiments will be used to point out the adverse effects of corruption in a central bank. Two empirical investigations will illustrate that there are indeed discernable effects of central bank corruption on monetary policy. The analysis presented here consists of empirical and theoretical elements. The empirical analysis and the theoretical models are intertwined because the modeling takes actual corruption cases as a starting point. Chapter II. A Corruption Case in the Central Bank of Indonesia, is a case study of a corruption case. This case study provides details of the actual case and the surrounding conditions of the Indonesian economy that favored the corrupt deal. After this empirical qualitative review of an actual case, the first model of a self-seeking and malicious central banker is given in Chapter III. Central Banks in a Corrupt Environment: How Corruption Drives Inflation. Chapter IV introduces a second model of a corrupt central banker, one who sells inside information. Chapter V reports the results of empirical research. It has already been shown by previous empirical research that corruption in general seems to increase the inflation rate. My model of the corrupt central banker provides a new explanation of this effect. Formerly, it was the general conclusion that due to the bigger share of the underground economy in more corrupt societies, the state needs higher seigniorage revenue to generate the necessary income to cover government expenditure. These two theories, that is, that corruption leads to a higher rate of inflation and/or higher seigniorage, will be tested for a cross-section of 80 countries. Chapter VI concludes.

Level thesis:degree_level

thesis.doctoral

Grantor dc:publisher

Universität Passau

Year

2006

Author dc:creator

• Schinke, Michael

Contributors dc:contributor

• Lambsdorff, Johann Graf

• Inflationsbias
• Seigniorage
• stochastische Angebotsschock
• Konservative
• Populisten
• Monetary Policy
• Corruption
• Timeinconsistency
• Inflation
• Stabilization

Statement dc:rights

• Standardbedingung laut Einverständniserklärung

Repository record source_url

https://opus4.kobv.de/opus4-uni-passau/frontdoor/index/index/docId/63

OAI identifier oai:identifier

oai:kobv.de-opus4-uni-passau:63