The Monetary and Fiscal History of Peru, 1960-2017: Radical Policy Experiments, Inflation and Stabilization
Abstract
We show that Peru’s chronic inflation through the 1970s and 1980s was the result of the need for
inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when
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 the
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 hyperstagflation of 1987–1990.
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Documento de trabajo; 468
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