Fiscal policy considerations in the design of monetary policy in Peru

Renzo Rossini, Zenon Quispe () and Jorge Loyola
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Jorge Loyola: Central Reserve Bank of Peru

No 2012-022, Working Papers from Banco Central de Reserva del Perú

Abstract: We evaluate the financial and real linkages between fiscal and monetary policy in Peru, and show that during the recent export commodity price boom, public finances supported the implementation of monetary policy. In particular, the reduction of the net public debt has translated into a greater capability by the Central Bank to sterilize its FOREX interventions. Also, an active policy to enhance the development of the local capital markets, using the issuance of public bonds denominated in local currency as a benchmark, has created the incentive to de-dollarize banking credit. On the other hand, difficulty in fine-tuning public investment around the business cycle in recent years has led to periods of a fiscal stance that does not counteract the real business cycle. This raises the question of the possibility of adopting a structural rule for the public sector balance, based on structural fundamentals.

Keywords: Central Bank Monetary Policy; Fiscal Policy; Macroeconomic Stabilization (search for similar items in EconPapers)
JEL-codes: E52 E58 E63 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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