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A Dynamic Enquiry into the Causes of Hyperinflation in Zimbabwe

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  • Albert Makochekanwa

    ()
    (Department of Economics, University of Pretoria)

Abstract

The purpose of this study is to determine the causes of hyperinflation in Zimbabwe for the period February 1999 to December 2006 using appropriate econometric techniques. Results from long run and shot run econometric models shows money supply, black market for foreign exchange (US$) and lagged values of hyperinflation to be positively correlated with the country’s hyperinflation trend. This result accords well with the various theories of hyperinflation. Surprisingly, political rights index as a determinant is negatively associated with hyperinflation, suggesting that an increase in this variable reduces hyperinflation. This is against economic theory, which expects a positive sign for this, variable. Granger causality test is also conducted between money supply and hyperinflation to empirically test the direction of causality, while sensitivity tests are done to infer the effect of money supply shock on hyperinflation trend.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200710.

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Length: 30 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:pre:wpaper:200710

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  1. Makinen, Gail E, 1984. "The Greek Stabilization of 1944-46," American Economic Review, American Economic Association, vol. 74(5), pages 1067-74, December.
  2. Makinen, Gail E., 1986. "The Greek Hyperinflation and Stabilization of 1943–1946," The Journal of Economic History, Cambridge University Press, vol. 46(03), pages 795-805, September.
  3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  4. Makinen, Gail E & Woodward, G Thomas, 1989. "The Taiwanese Hyperinflation and Stabilization of 1945-1952," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 90-105, February.
  5. Sargent, Thomas J & Wallace, Neil, 1973. "Rational Expectations and the Dynamics of Hyperinflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 328-50, June.
  6. Babcock, J M & Makinen, G E, 1975. "The Chinese Hyperinflation Reexamined," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1259-67, December.
  7. Bomberger, William A & Makinen, Gail E, 1983. "The Hungarian Hyperinflation and Stabilization of 1945-1946," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 801-24, October.
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