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Assessing the Money, Exchange Rate, Price Links during Hyperinflationary Episodes in the Democratic Republic of the Congo

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  • Jean-Claude Maswana

    (Kyoto University)

Abstract

The determination of the causal pattern among inflation, money growth, and exchange rate has important implications for policymakers regarding appropriate stabilization policies in developing economies. Using Congolese data where the pace of broad money growth and hyperinflation (23,760% annual change) reached record levels in early 1990s, we use single−equation multivariate autoregressive models with the optimal lag selected using Hsiaofs approach to Granger causality. Results indicate feedback causality between inflation and money growth on one side, and unidirectional Granger causality from money growth to the exchange rate and from the exchange rate to inflation on the other. These results suggest that the over−riding goal of disinflation needs to be accomplished initially by exchange rate stabilization, followed by a direct inflation targeting.

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File URL: http://128.118.178.162/eps/dev/papers/0511/0511023.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0511023.

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Length: 12 pages
Date of creation: 22 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpdc:0511023

Note: Type of Document - pdf; pages: 12. Inflation in the DR Congo
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Web page: http://128.118.178.162

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Keywords: Congo Inflation Hsiao's version of Granger Causality;

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  1. 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.
  2. Elie Canetti & Joshua E. Greene, 1991. "Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries," IMF Working Papers 91/67, International Monetary Fund.
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  8. Matias Vernengo, 2005. "Money and Inflation: A Taxonomy," Working Paper Series, Department of Economics, University of Utah 2005_14, University of Utah, Department of Economics.
  9. Oscar Bajo-Rubio & M. Dolores Montávez-Garcés, 2002. "Was there Monetary Autonomy in Europe on the eve of EMU? The German Dominance Hypothesis Re-Examined," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 185-207, November.
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  11. Hsiao, Cheng, 1982. "Autoregressive modeling and causal ordering of economic variables," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 243-259, November.
  12. Hsiao, Cheng, 1981. "Autoregressive modelling and money-income causality detection," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 85-106.
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  15. Webb, Steven B, 1985. "Government Debt and Inflationary Expectations as Determinants of the Money Supply in Germany, 1919-23," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 479-92, November.
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