Monetary and Fiscal History of Peru 1960-2010: Radical Policy Experiments, Inflation and Stabilization

Cesar Martinelli and Marco Vega

No 2018-007, Working Papers from Banco Central de Reserva del Perú

Abstract: We show Peru's experience of chronic inflation through the 1970s and 1980s resulted from inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when further 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 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 hyper stagflation of 1987-1990.

Date: 2018-11
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2018-007

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