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Currency Substitution and Inflation in Peru

  • Liliana Rojas-Suárez

This paper shows that there is a long-run relationship between the expected rate of depreciation in the black-market-exchange rate and the ratio of domestic to foreign money in Peru; that is, the hypothesis of currency substitution can explain the behavior of real holdings of money in Peru. The paper also shows that, while the importance of currency substitution as a transmission mechanism through which domestic policies affected the dynamics of inflation was relatively small during a period of high but relatively stable inflation (January 1978-85), it became an important factor in the inflation process during the recent hyperinflation episode.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 92/33.

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Length: 46
Date of creation: 01 May 1992
Date of revision:
Handle: RePEc:imf:imfwpa:92/33
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