Currency Substitution and Inflation in Peru

Author/Editor:

Liliana Rojas-Suárez

Publication Date:

May 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1992/033

Subject:

Bank deposits Dollarization Exchange rates Financial services Foreign exchange Government debt management Inflation Monetary policy Prices Public financial management (PFM)

English

Publication Date:

May 1, 1992

ISBN/ISSN:

9781451979206/1018-5941

Stock No:

WPIEA0331992

Pages:

46

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