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

Author

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  • Martinelli, César

    (George Mason University)

  • Vega, Marco

    (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.

Suggested Citation

  • Martinelli, César & Vega, Marco, 2018. "Monetary and Fiscal History of Peru 1960-2010: Radical Policy Experiments, Inflation and Stabilization," Working Papers 2018-007, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2018-007
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    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2018/documento-de-trabajo-007-2018.pdf
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    Cited by:

    1. César Martinelli & Marco Vega, 2019. "The Economic Legacy of General Velasco: Long-Term Consequences of Interventionism," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 42(84), pages 102-133.
    2. Sebastian Edwards, 2019. "On Latin American Populism, and Its Echoes around the World," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 76-99, Fall.
    3. Jiménez, Alvaro & Rodríguez, Gabriel & Ataurima Arellano, Miguel, 2023. "Time-varying impact of fiscal shocks over GDP growth in Peru: An empirical application using hybrid TVP-VAR-SV models," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 314-332.
    4. Sebastian Edwards, 2019. "On Latin American Populism, And Its Echoes Around the World," NBER Working Papers 26333, National Bureau of Economic Research, Inc.

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