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Currency Substitution and Inflation in Peru

Author

Listed:
  • Ms. Liliana Rojas-Suárez
Abstract
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.

Suggested Citation

  • Ms. Liliana Rojas-Suárez, 1992. "Currency Substitution and Inflation in Peru," IMF Working Papers 1992/033, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/033
    as

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