an investment model has been formulated that incorporates the effects of inflation- induced uncertainty on the business forecasts of risk-averse investors. The empirical analysis with Peruvian data confirmed the theoretical proposition that firms reduce their real capital formation if the inflation variability rises. The empirical investigation also showed a close relationship between the level and the variability of inflation. It can thus be concluded that financial liberalizations has to be accompanied by measures to reduce inflation if private real capital formation is to be stimulated effectively. Otherwise, an increased credit supply will not lead to more long-term investments but rather will be used to finance consumption and short- term speculative investments.
Banco Central de Reserva del Perú (BCRP). Cuentas Nacionales del Perú: 1960- 1974. Lima.
-----. Memoria. Various issues.
-----. "Tasas de Interes en Moneda Nacional." Unpublished paper, Lima.
Instituto Nacional de Estadistica (INE). Cuentas Nacionales del Perú. Various issues.
Blejer Mario I. ( 1979). "The Demand for Money and the Variability of the Rate of Inflation: Some Empirical Results." International Economic Review 20, no. 2: 545-549.
Bruch Mathias, ( 1983). Kleinbetriebe und Industrialisierungspolitik in Entwicklungsländern. Kieler Studien, no. 182. Tübingen: Mohr.