Incidence of the variables of Aggregated Demand on the International Reserves of Bolivia

Abstract

Bolivia, after years of economic prosperity now finds itself in a complex situation due to the shortage of foreign reserves, with a high risk of inflation and putting considerable pressure on the Bolivian financial system and Bolivia ́s Central Bank (BCB) ¿How did we reach this situation? ¿Should the government and the central bank adopt another economic thought? This investigation does not intend to give an absolute response to these questions, but rather to use quantifiable statistical tools such as multiple regression and commonly utilized economic indicators like aggregate demand, linked to Keynesian economic theory. So that it would be possible to identify the relationship between the economic variables and the historical foreign reserves fluctuation, being able to sketch during the process and trough the results, the specific areas that should be the target of Bolivian society and government ́s future efforts to revert the crisis caused by the shortage of foreign reserves. It will be statistically proven that the excessive government spending and the balance of trade deficit have plunged the country into this situation. Finally, that the correction process requires a policy of austerity and the strengthening of the exporting sector.