Macroeconomic adjustment to regional shocks in Peru

Details

Supervisors

Houssa, Romain

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale

Abstract

The purpose of this paper is to study the implications of regional shocks in the economy of Peru. For many years, the capital of the country has been receiving all the attention and care necessary to progress and grow steadily. On the contrary, the unconcern for the periphery has caused it a delay in the levels of development and industrialization. Therefore, there is a huge gap between the centre and the rest of the country that is reflected in the Peruvian economy. This situation is provoking difficulties to adjust to idiosyncratic shocks that have consequences for the economy’s stability. In this sense, an empirical analysis using the SVAR model is applied to identify structural shocks across regions. We compare Lima with two other cities to observe the extent and responses to regional shocks. The results suggest that idiosyncratic shocks provoke imbalances in the economy that are complex and costly to solve. We explain how Peruvian authorities address this problem and what constraints they have to properly intervene. Lastly, we imply some recommendations on how to deal with this difficult situation.