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The Monetary and Fiscal History of Peru, 1960-2017

Cesar Martinelli () and Marco Vega ()

No 1068, Working Papers from George Mason University, Interdisciplinary Center for Economic Science

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 diculties 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.

Pages: 50
Date: 2018-08, Revised 2019-04
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
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