Floating Exchange Rates in Less-Developed Countries: A Monetary Analysis of the Peruvian Experience, 1950-54

Deskripsi

Provides a rare empirical analysis of a floating exchange rate system in a less-developed country (LDC) by examining Peru's experience from 1950 to 1954. The study tests a short-run monetary model of exchange rate determination, which incorporates slow adjustment in the money market and temporary deviations from Purchasing Power Parity (PPP). The core empirical results from estimating the monetary model are robust: the coefficient on the money supply differential between Peru and the United States is not significantly different from one, indicating an equiproportional relationship between money growth and exchange rate depreciation. The coefficients for real income and interest rate differentials also align with the theoretical predictions.