Facing up a sudden stop of capital flows: Policy lessons from the 90's peruvian experience

Paul Castillo and Daniel Barco ()
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Daniel Barco: Banco Central de Reserva del Perú

No 2008-002, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper assesses the policies implemented in the Peruvian economy in response to the sudden stop of capital flows of the end of the nineties. The Peruvian experience during this episode is an interesting case-study because it offers an example of a highly dollarized economy where a sudden stop of capital flows neither had dramatic negative effects on the banking system nor generated an abrupt fall on output. We argue that the large pool of international reserves, the investments on the tradable sector before 1997 and the performance of the fiscal policy during and before the period of financial distress were fundamental to this outcome. We further extract policy lessons and discuss the strengths and the weakness of the Peruvian economy to this type of shocks nowadays.

Keywords: Sudden Stops; Peru; International Reserves; and Policy Responses (search for similar items in EconPapers)
JEL-codes: E44 E58 F32 F34 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2008-002

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