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Facing up a sudden stop of capital flows: Policy lessons from the 90's peruvian experience

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Author Info

  • Paul Castillo

    ()
    (Banco Central de Reserva del Perú)

  • Daniel Barco

    ()
    (Banco Central de Reserva del Perú)

Abstract

This paper assesses the policies implemented in the Peruvian economy in response to the sudden stop of capital flows of the end of the nineties. The Peruvian experience during this episode is an interesting case-study because it offers an example of a highly dollarized economy where a sudden stop of capital flows neither had dramatic negative effects on the banking system nor generated an abrupt fall on output. We argue that the large pool of international reserves, the investments on the tradable sector before 1997 and the performance of the fiscal policy during and before the period of financial distress were fundamental to this outcome. We further extract policy lessons and discuss the strengths and the weakness of the Peruvian economy to this type of shocks nowadays.

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2008-002.

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Date of creation: Jan 2008
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Handle: RePEc:rbp:wpaper:2008-002

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Keywords: Sudden Stops; Peru; International Reserves; and Policy Responses;

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Cited by:
  1. Sobrino, César R, 2013. "The twin deficits hypothesis and reverse causality: A short-run analysis of Peru," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 18(34), pages 9-15.

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