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Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe

Author

Listed:
  • Jens R Clausen
  • Sharmini Coorey
  • Bakar Ould-Abdallah
  • Sònia Muñoz
  • Norbert Funke

Abstract

Zimbabwe has currently the highest rate of inflation in the world (an annual rate of 1,730 percent in February, 2007). The high rates of inflation have contributed to the contraction of the economy, which has declined by about 30 percent since 1999. This paper examines the stabilization experience of countries that experienced similar rates of inflation (above 1,000 percent) during 1980-2005 and draws lessons for Zimbabwe. First, with appropriate stabilization policies, the fall in inflation can be very rapid and output normally recovers within the first year or two of stabilization. Second, while reforms need to be comprehensive, a strong upfront fiscal consolidation, including elimination of quasi-fiscal activities, is a critical element of a successful stabilization program. Third, although stabilization itself can be done without significant external financing in the first year, most countries benefited from external policy advice and technical support, including from the IMF, during stabilization and from an increase in financial assistance in subsequent years.

Suggested Citation

  • Jens R Clausen & Sharmini Coorey & Bakar Ould-Abdallah & Sònia Muñoz & Norbert Funke, 2007. "Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe," IMF Working Papers 07/99, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/99
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=20658
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    References listed on IDEAS

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    1. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
    2. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    3. Reinhart, Carmen & Savastano, Miguel, 2003. "The Realities of Modern Hyperinflation," MPRA Paper 7578, University Library of Munich, Germany.
    4. Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 00/85, International Monetary Fund.
    5. Saleh M. Nsouli & Mounir Rached & Norbert Funke, 2005. "The speed of adjustment and the sequencing of economic reforms: Issues and guidelines for policymakers," International Journal of Social Economics, Emerald Group Publishing, vol. 32(9), pages 740-766, September.
    6. Sònia Muñoz, 2007. "Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe; A Note," IMF Working Papers 07/98, International Monetary Fund.
    7. Mark A Horton & George C. Tsibouris & Wojciech Maliszewski & Mark J Flanagan, 2006. "Experience with Large Fiscal Adjustments," IMF Occasional Papers 246, International Monetary Fund.
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    Citations

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    Cited by:

    1. Manoel Bittencourt, 2007. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 163, Ibero-America Institute for Economic Research.
    2. Kuikeu, Oscar, 2011. "Comment la dernière crise financière a relancé le débat relatif à l'arrimage du fcfa à l'euro
      [How the recent financial crisis have revived the debate on the parity between fcfa and euro]
      ," MPRA Paper 32077, University Library of Munich, Germany.

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