The Monetary and Fiscal History of Peru, 1960-2017: Radical Policy Experiments, Inflation and Stabilization

Marco Vega and Cesar Martinelli

No 2018-468, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: We show that Peru’s chronic inflation through the 1970s and 1980s was the result of the need for inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when debt accumulation became unavailable, and a populist administration engaged in a counterproductive policy of price controls and loose credit. We interpret the fiscal difficulties preceding the stabilization as a process of social learning to live within the realities of fiscal budget balance. The credibility of the policy regime change in the 1990s may be linked ultimately to the change in public opinion giving proper incentives to politicians, after the traumatic consequences of the hyperstagflation of 1987-1990. JEL Classification-JEL: E52 , E58 , E62

Keywords: Hyperstagflation; Inflation; Fiscal policy; Monetary policy (search for similar items in EconPapers)
Pages: 50
Date: 2018
New Economics Papers: this item is included in nep-his, nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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