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Ricardo V. Lago

Ricardo V. Lago. “PERU’s RESILIENCE DURING THE CRISIS 2008-10 : LESSONS FOR DEVELOPING COUNTRIES” Dubrovnik 24 June , 2010. MERTON & SCHOOLES. KEYNES & FISHER. “ Outside the dog , a book is a man’s best friend and inside the dog is too dark to read “.

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Ricardo V. Lago

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  1. Ricardo V. Lago “PERU’s RESILIENCE DURING THE CRISIS 2008-10 : LESSONS FOR DEVELOPING COUNTRIES” Dubrovnik 24 June , 2010

  2. MERTON & SCHOOLES

  3. KEYNES & FISHER

  4. “ Outside the dog , a book is a man’s best friend and inside the dog is too dark to read “

  5. PERU MACROECONOMIC PERFORMANCE Through the international crisis : 2008- 2010 From 1990 to 2010

  6. The Situation in 1990 • Massive default including with the IFIs • Bout of Hyperinflation • 12 months ending August 1990 ( 8,000 %) • Highest daily rate 114% • Depression : 25 % cumulative drop in GDP 1988-1990 • Widespread terrorist insurgency :The Shinning Path

  7. Peru in 1990 Close to becoming a failed State Cambodia on the eve of the takeover by the Khmer Rouge

  8. ISSUES IN THE PAPER Peru ‘s Macroeconomic Policy 2008 -2010 compared those of Brazil , Chile , Colombia , and Mexico Identifying factors of Peru’s strength Lessons for other developing countries

  9. `

  10. ISSUE 1 MACROECONOMIC POLICY 2008 -2010

  11. FISCAL STIMULUS

  12. MONETARY STIMULUS

  13. MY CONCLUSION : MACROECONOMIC PERFORMANCE DEPENDED CRITICALLY ON : • 1 .Whether the authorities were able to maintain exchange and interest rate stability. I look at daily data during period of maximum turbulence • Level of the exchange rate • Changes ( first differences ) in the exchange rate • Level of the interest rate • 2. Whether the authorities were able to maintain positive credit flows to the private sector

  14. PERIOD OF MAXIMUM TURBULENCE • Period Sept 7th, 08 ( Fannie and Freddy ) to March 06 , 2009 ( Trough of US Stock Market) • Exchange rates for 4 countries normalized at 100 on Sept 7th , 08

  15. FREQUENCY DISTRIBUTION 1 VARIABLE 1 : LEVEL OF THE EXCHANGE RATE

  16. Peru versus Brazil

  17. Peru versus Chile

  18. Peru versus Mexico

  19. EXCHANGE RATES LEVELS FREQUENCY OF DISTRIBUTION OF LEVEL OF EXCHANGE RATE

  20. Do you want to learn about the importance of Kurtosis risk ? Read Sasa Zikovic’s ( 2010 ) book : “Market Risk in Transition Countries”

  21. FREQUENCY DISTRIBUTION 2 VARIABLE 2 : CHANGES IN THE EXCHANGE RATE

  22. Peru versus Chile

  23. Peru versus Brazil

  24. Peru versus Mexico

  25. FREQUENCY DISTRIBUTION 3 VARIABLE 3: LEVEL OF THE INTEREST RATE

  26. FREQUENCY OF DISTRIBUTIONS OF LEVEL OF THE INTEREST RATE Period Sept 7th, 08 ( Fannie and Freddy) to most devalued level of the exchange rate for each country : • Peru : Sept 7th ,08 through March 5th ,09 • Brazil : Sept 7th ,08 through Dec 8th, 08 • Chile : Sept 7th ,08 through Nov 21st , 08 • Mexico: Sept 7th ,08 through March 5th,09

  27. Peru versus Brazil

  28. Peru versus Chile

  29. Peru versus Mexico

  30. ANALYTICAL FRAMEWORK • Mundell-Fleming IS-LM-BP • Rudi Dornbusch ( 1976 ) • Exchange rate overshooting model • t = 0 : before the Crisis • M (o) = p { C - a r + b y } • C= Highly speculative money demand • t= 1 : the crisis hits • C = Flight to safety • M(1) = p { -a r+ by } • C= Excess supply of domestic money = excess demand for dollars

  31. ISSUE 2 IDENTIFYING THE FACTORS OF STRENGTH

  32. 8 MACROECONOMIC FACTORS 1. CENTRAL BANK INTERNATIONAL RESERVES 2. . CONSOLIDATEDPUBLIC SECTOR WAS NET INTERNATIONAL CREDITOR 3.. BANKING SECTOR : SMALL AND LIQUID, WELLCAPITALIZED AND SUPERVISED 4. . UNDER-MORTGAGEDBANKINGSYSTEM 5. SCOPE FOR COUNTER-CYCLICAL POLICIES 6. CREDIBILITYOF ECONOMIC TEAM 7 . PORTFOLIO DIVERSIFICATION OF MINERAL EXPORTS 8. STRONGPIPELINE OF FOREIGNDIRECT INVESTMENT

  33. 4 STRUCTURAL FACTORS 1.TRACK RECORD OF ECONOMIC REFORM 2. SUSTAINEDREDUCTION OF POVERTY 3. SUPPORTOF POPULATION FOR A MARKET ECONOMY 4. LOWRISK OF RETURN TO POPULISM

  34. NET INTERNATIONAL RESERVES

  35. Optimal level of Reserves Ivo Krznar paper on the topic

  36. ISSUE 3 LESSONS FOR OTHER DEVELOPING COUNTRIES

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