Fiscal policy and monetary policy to reverse the current international financial crises

Abstract

The present study is aimed at investigating the way in which the current international financial crises has affected the Peruvian economy, and how correct had been the fiscal policy and monetary policy to reverse these effects. The investigation asserts that the crises affected temporarily the Peruvian economy by means of two channels: the real channel and the financial one. Also, we assert that the government applied right fiscal policy decisions as: increasing of public expenditure, and decreasing of taxes; and right monetary policy decisions as: maintaining the financial system's liquidity by means of reducing the overnight call rate target, reducing the reserve ratio, open market operations; and participated in the money exchange market to moderate the exchange rate volatility. It was applied non-experimental methodology, and the period of study was October 2008 – August 2011. It was found, that the global crises affected the Peruvian economy during the 2008's fourth quarter and the 2009's second quarter; it could be evidenced by the GDP's falling, increasing of delinquencies in the bank system, falling of stock exchange market, and volatility of exchange rate. Also, it was proved that fiscal policy and monetary policy decisions applied during October and August 2011were correct, this is evidenced by the fast GDP's recovery, unemployment reduction, and inflation was maintained into the target range. In addition, it was reached a fiscal surplus and internal net reserves were increased. The last allows having resources to –despite the political scenario has changed- face similar crises as of the year 2008.