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The purpose of this paper is to investigate the role of huge budget deficits in Peru's near-hyperinflation during recent years. We use the rational expectations macro model of inflation to find out effect of the anticipated budget deficits on inflation rates by using the quartely data of Peru for the period 1973:1 to 1988:1. Our major finding has been that the budget deficits as well as the rate of growth of money supply do have significant impact on the inflation rates in Peru.
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Choudhary et al. (1991) studied this question.
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