publication . Preprint . 1992

Currency Substitution and Inflation in Peru

Liliana Rojas-Suárez;
Open Access
  • Published: 01 May 1992
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.
free text keywords: Currency substitution;Economic models;Inflation;Peru;exchange rate, inflation rate, monetary policy
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