How is the Hyperinflation in Zimbabwe Different?
This chapter addresses two alternative reasons for hyperinflation in Zimbabwe: was it caused by speculation in the private sector or did reduced foreign aid result in the government using seigniorage to finance the deficit? A long-run money demand equation is estimated with an ARDL model, which is then used to test for self-perpetuating price movements and to study the interaction between money and prices. We find that prices were not self-perpetuating. Finally, the revenue-maximising level of seigniorage is calculated, and the scale of the reduction in ODA is compared to the fall in domestic financing. We find that authorities converged on a seigniorage-maximisation path only towards the end of the period of interest. We cannot reject that ODA had been expected to grow substantially from year 2000, and that it was this shortfall that the government financed by borrowing from the Reserve Bank of Zimbabwe.
KeywordsInflation ODA ARDL Money demand
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