The short-term economic impact of Peru's internal conflict: A fixed effects two sector approach.

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The recent period of very high inflation has called in to question the effectiveness of monetary policy (interest rate adjustments) for inflation targeting. It is increasingly recognised that important sources of inflation (e.g. rising energy prices) are outside of the central bank's jurisdiction. This thesis examines the case for a more prominent role for fiscal policy in achieving price stability, particularly the potential for the state's capacity to tax (and invest strategically in) critical industries associated with systemic price impacts such as energy and food staples. I will develop an empirical modelling framework suited for use by policy makers that will enable the identification of inflation sensitive industries and devise a metric of inflation risk that can be practically used to appraise fiscal policy proposals. The framework will be refined by evaluating it empirically on two distinct case studies. The first is a high-income economy with a sovereign currency and well-established macroeconomic policy regime (the UK). The second is a developing country (Peru) faced with different challenges given its weaker global currency and dependency on foreign imports. As well as working with datasets in these countries, I will conduct selected interviews with staff in state institutions concerned with price stability.