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Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe

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Author Info

  • Jens R. Clausen
  • Sharmini Coorey
  • Bakar Ould-Abdallah
  • Sònia Muñoz
  • Norbert Funke

Abstract

Zimbabwe has currently the highest rate of inflation in the world (an annual rate of 1,730 percent in February, 2007). The high rates of inflation have contributed to the contraction of the economy, which has declined by about 30 percent since 1999. This paper examines the stabilization experience of countries that experienced similar rates of inflation (above 1,000 percent) during 1980-2005 and draws lessons for Zimbabwe. First, with appropriate stabilization policies, the fall in inflation can be very rapid and output normally recovers within the first year or two of stabilization. Second, while reforms need to be comprehensive, a strong upfront fiscal consolidation, including elimination of quasi-fiscal activities, is a critical element of a successful stabilization program. Third, although stabilization itself can be done without significant external financing in the first year, most countries benefited from external policy advice and technical support, including from the IMF, during stabilization and from an increase in financial assistance in subsequent years.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/99.

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Length: 16
Date of creation: 01 Apr 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/99

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Related research

Keywords: International cooperation; Financial assistance; inflation; high inflation; monetary fund; central bank; high inflation episodes; annual inflation; inflation rate; monetary policy; rates of inflation; reduction in inflation; price level; money growth; relative price; rate of inflation; quantity theory of money; monetary stabilization; foreign exchange; monetary dynamics; open market operations; printing money; high rates of inflation; real wages; lower inflation; real interest rates; reduction of inflation; high inflations; fall in inflation; effects of inflation; quantity theory; inflation rates; annual inflation rate; theory of money; high rates of money growth; monetary anchor;

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References

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  1. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 2002. "Modern Hyper- and High Inflations," NBER Working Papers 8930, National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen & Savastano, Miguel, 2003. "The Realities of Modern Hyperinflation," MPRA Paper 7578, University Library of Munich, Germany.
  3. Mark A. Horton & George C. Tsibouris & Wojciech Maliszewski & Mark J Flanagan, 2006. "Experience with Large Fiscal Adjustments," IMF Occasional Papers 246, International Monetary Fund.
  4. Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 00/85, International Monetary Fund.
  5. Saleh M. Nsouli & Mounir Rached & Norbert Funke, 2005. "The speed of adjustment and the sequencing of economic reforms: Issues and guidelines for policymakers," International Journal of Social Economics, Emerald Group Publishing, vol. 32(9), pages 740-766, September.
  6. Sònia Muñoz, 2007. "Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe: A Note," IMF Working Papers 07/98, International Monetary Fund.
  7. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
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Cited by:
  1. Manoel Bittencourt, 2007. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 163, Ibero-America Institute for Economic Research.
  2. Kuikeu, Oscar, 2011. "Comment la dernière crise financière a relancé le débat relatif à l'arrimage du fcfa à l'euro
    [How the recent financial crisis have revived the debate on the parity between fcfa and euro]
    ," MPRA Paper 32077, University Library of Munich, Germany.

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