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Interest rate reform and private investment behaviour in developing countries: Evidence from Peru

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  • Corsepius, Uwe
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    Abstract

    The principle aims to be achieved by financial liberalization in financially repressed developing countries are to increase the volume of investments and to improve their allocative efficiency. The theoretical and empirical literature stresses the importance of raising real interest rates in countries .with interest rate ceilings and permanently or at least temporary negative real interest rates. This reform proposal is based on the expectation that higher real interest rates would induce private households to save more in the commercial banking system, thereby enabling financial institutions to expand their credit supply to private firms. Assuming that private investments were constrained by the non-availability of credit before the financial reform was implemented, those firms are supposed to increase their real capital formation.

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    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 317.

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    Date of creation: 1988
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    Handle: RePEc:kie:kieliw:317

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    1. Stanley Fischer & Franco Modigliani, 1978. "Towards An Understanding of the Real Effects and Costs of Inflation," NBER Working Papers 0303, National Bureau of Economic Research, Inc.
    2. Blejer, Mario I, 1979. "The Demand for Money and the Variability of the Rate of Inflation: Some Empirical Results," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 545-49, June.
    3. Foster, Edward, 1978. "The Variability of Inflation," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 346-50, August.
    4. Fry, Maxwell J., 1982. "Models of financially repressed developing economies," World Development, Elsevier, vol. 10(9), pages 731-750, September.
    5. Cho, Yoon Je, 1986. "Inefficiencies from Financial Liberalization in the Absence of Well-Functioning Equity Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(2), pages 191-99, May.
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