Aspects of Adopting an Inflation Targeting Regime in Peru

This article assesses the conditions necessary for implementing an inflation-targeting regime in Peru, analyzing the legal framework, monetary policy design, and aspects of transparency and accountability. Using data from the Central Reserve Bank of Peru (BCRP) from 1994 to 2001, an empirical approach based on vector autoregressive (VAR) models is employed to investigate the relationship between money supply and inflation. The findings indicate that Peru meets the requirements for adopting this regime, including central bank independence and a clear commitment to price stability. It is observed that growth in the monetary base has a causal effect on inflation, suggesting that a more transparent monetary policy framework would enhance the BCRP’s credibility and optimize inflation expectations. The implications for economic policy highlight the importance of adopting a longer-term approach to monetary policy to strengthen economic stability and foster an environment conducive to investment. (Abstract and audio: Department of Economic Publications)