An approach to the demand for the main monetary aggregates in Peru: June 1991–May 1997

This study examines the demand for the main monetary aggregates in Peru between June 1991 and May 1997, against the backdrop of structural reforms and following a period of hyperinflation. It focuses on identifying and assessing the stability of money demand, which is crucial for the design of an effective monetary policy. Using cointegration and error correction methodologies, the analysis reveals long-run equilibrium relationships among monetary aggregates, gross domestic product, the short-term interest rate, and expected inflation. The results indicate that, although there are periods of instability in the coefficients—particularly around a breakpoint identified in July 1994—the demand for currency in circulation is more stable and could serve as an intermediate indicator in the implementation of monetary policy. The research suggests that the Central Bank’s ability to control the economy lies in monitoring these monetary aggregates, which can facilitate the achievement of its price stability and inflation targets. (Abstract and audio: Department of Economic Publications)