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

52 Pages Posted: 24 Aug 2018 Last revised: 2 Mar 2019

See all articles by César Martinelli

César Martinelli

George Mason University - Interdisciplinary Center for Economic Science (ICES)

Marco Vega

Central Reserve Bank of Peru

Multiple version iconThere are 2 versions of this paper

Date Written: August 24, 2018

Abstract

We show that Peru’s chronic inflation through the 1970s and 1980s was a result of the need for 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, which gave proper incentives to politicians, after the traumatic consequences of the hyper stagflation of 1987-1990.

Suggested Citation

Martinelli, César and Vega, Marco Antonio, Monetary and Fiscal History of Peru 1960-2017: Radical Policy Experiments, Inflation, and Stabilization (August 24, 2018). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-63. Available at SSRN: https://ssrn.com/abstract=3238189 or http://dx.doi.org/10.2139/ssrn.3238189

César Martinelli (Contact Author)

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

400P Truland Building
George Mason University
Fairfax, VA 22030
United States

Marco Antonio Vega

Central Reserve Bank of Peru ( email )

Jirón Miroquesada 441
Lima, Lima Lima 1
Peru

HOME PAGE: http://www.bcrp.gob.pe/

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