Download or read book Currency Substitution and Inflation in Peru written by Ms.Liliana Rojas-Suárez and published by International Monetary Fund. This book was released on 1992-05-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.