Currency Substitution and Inflation in Peru

May 1, 1992

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Format: Chicago

Liliana Rojas-Suárez. Currency Substitution and Inflation in Peru, (USA: International Monetary Fund, 1992) accessed November 21, 2024

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.

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

Keywords: Bank deposits, Currency substitution, Dollarization, Domestic money, Exchange rates, Foreign currency, Foreign money, Government debt management, Inflation, Inflation equation, Inflation rate, Money holder, Transmission mechanism, U.S. dollar, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/033
Stock No:

WPIEA0331992
ISBN:

9781451979206
ISSN:

1018-5941

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