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Postconflict Monetary Reconstruction

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  • Christopher Adam
  • Paul Collier
  • Victor A.B. Davies

Abstract

During civil wars governments typically resort to inflation to raise revenue. A model of this phenomenon is presented, estimated, and applied to the choices and constraints faced during the postconflict period. The results show that far from there being a fiscal peace dividend, postconflict governments tend to face even more pressing needs after than during war. As a result, in the absence of postconflict aid, inflation increases sharply, frustrating a more general monetary recovery. Aid decisively transforms the path of monetary variables in the postconflict period, enabling the economy to regain peacetime characteristics. Postconflict aid thus achieves a monetary "reconstruction" analogous to its more evident role in infrastructure. Copyright The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Christopher Adam & Paul Collier & Victor A.B. Davies, 2008. "Postconflict Monetary Reconstruction," World Bank Economic Review, World Bank Group, vol. 22(1), pages 87-112, January.
  • Handle: RePEc:oup:wbecrv:v:22:y:2008:i:1:p:87-112
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    File URL: http://hdl.handle.net/10.1093/wber/lhm020
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    Cited by:

    1. Gupta, Sanjeev, 2008. "Enhancing Effective Utilization of Aid in Fragile States," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    2. Ibrahim Elbadawi & Raimundo Soto, 2013. "Aid, Exchange Rate Regimes and Post-conflict Monetary Stabilization," Working Papers 751, Economic Research Forum, revised May 2013.
    3. Khusrav Gaibulloev & Javed Younas, 2016. "Conflicts and domestic bank lending," Public Choice, Springer, vol. 169(3), pages 315-331, December.

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