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

Author

Listed:
  • 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.

Suggested Citation

  • Paul Castillo & Daniel Barco, 2008. "Facing up a sudden stop of capital flows: Policy lessons from the 90's peruvian experience," Working Papers 2008-002, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2008-002
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    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2008/Working-Paper-02-2008.pdf
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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.

    More about this item

    Keywords

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

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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