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Hyperinflation in Zimbabwe: money demand, seigniorage and aid shocks

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  • Tara McIndoe-Calder

Abstract

Zimbabwe experienced record hyperinflation of 80 billion per cent per month in 2008. This article uses new data from Zimbabwe to investigate money demand under hyperinflation using an autoregressive distributed-lag model for the period 1980–2008. The results produce plausible convergence rates and long-run elasticities, indicating that real-money balances are cointegrated with the inflation rate and signifying an equilibrium relationship between the two series. Evidence is also presented suggesting prices were driven by increases in the money supply rather than by changes in price setting behaviour. The article uses the estimated elasticity on the inflation variable to calculate the maximum level of seigniorage revenue that could be raised in the economy. Actual seigniorage levels increased dramatically after 2000, with inflation eventually exceeding the rate required to maximize this revenue stream. This is discussed in relation to international financing constraints and the collapse of the domestic tax base.

Suggested Citation

  • Tara McIndoe-Calder, 2018. "Hyperinflation in Zimbabwe: money demand, seigniorage and aid shocks," Applied Economics, Taylor & Francis Journals, vol. 50(15), pages 1659-1675, March.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:15:p:1659-1675
    DOI: 10.1080/00036846.2017.1371840
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    1. repec:bcp:journl:v:6:y:2022:i:6:p:669-677 is not listed on IDEAS
    2. Tshilidzi Munzhelele, 2025. "Rule of Law and Economic Stability: Corruption, Inflation, and Exchange Rate Volatility in South Africa," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 84-108.
    3. Maruta, Admasu Asfaw & Banerjee, Rajabrata & Cavoli, Tony, 2020. "Foreign aid, institutional quality and economic growth: Evidence from the developing world," Economic Modelling, Elsevier, vol. 89(C), pages 444-463.
    4. Luca Benati, 2018. "Cagan s Paradox Revisited," Diskussionsschriften dp1826, Universitaet Bern, Departement Volkswirtschaft.
    5. Noell Machinjike & Wellington G. Bonga, 2021. "Fiscal Discipline and Budget Processes: Evidence from Zimbabwe," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(2), pages 607-616, February.
    6. Miller, Stephen Matteo & Ndhlela, Thandinkosi, 2020. "Money demand and seignorage maximization before the end of the Zimbabwean dollar," Journal of Macroeconomics, Elsevier, vol. 63(C).

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