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Money Supply Growth, Exchange Rate and Inflation Dynamics in Zimbabwe: An Autoregressive Distributed Lag -Error Correction Model

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  • Joseph Mverecha

Abstract

Purpose: The study investigates the relationship between monetary growth, exchange rate and price level dynamics in Zimbabwe. Methodology: The methodology follows the Autoregressive Distributed Lag Model (ARDL), following Pesaran and Shin, (1999) and Pesaran et al Bounds Testing (2001) for testing time, monthly data from 2018 to 2023. Findings: Monetary shocks propagation has time varying distributed lag effects on the exchange rate, leading to short run dynamics of adjustment with implications for price formation in Zimbabwe. Adjustment to long run, following a monetary shock is slow, indicating persistence. Unique Contribution to Theory, Policy and Practice: The study contributes to the literature on optimal monetary policy formulation and implementation through characterising the pass through effects from money growth to exchange rate and price formation in the economy.

Suggested Citation

  • Joseph Mverecha, 2025. "Money Supply Growth, Exchange Rate and Inflation Dynamics in Zimbabwe: An Autoregressive Distributed Lag -Error Correction Model," International Journal of Economic Policy, CARI Journals Limited, vol. 5(4), pages 1-21.
    • Handle: RePEc:bhx:ijecop:v:5:y:2025:i:4:p:1-21:id:3051
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    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. Hoffmann, Mathias & Hürtgen, Patrick, 2016. "Inflation expectations, disagreement, and monetary policy," Economics Letters, Elsevier, vol. 146(C), pages 59-63.
    3. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 707-734.
    4. Michael Woodford, 2007. "Globalization and Monetary Control," NBER Chapters, in: International Dimensions of Monetary Policy, pages 13-77, National Bureau of Economic Research, Inc.
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