Determinants of Money Demand in Zimbabwe 1980-2008
MIDLANDS STATE UNIVERSITY FACULTY OF COMMERCE
DEPARTMENT OF ECONOMICS
PROGRAMME: B. COMM. ECONOMICS HONOURS DEGREE
MODULE: ECONOMETRICS B (EC409)
Determinants of money demand in Zimbabwe from 1980-2008
TABLE OF CONTENT
CHAPTER 1 INTRODUCTION
CHAPTER 2 LITERATURE REVIEW
CHAPTER 3 METHODOLOGY
CHAPTER 4 RESULTS PRESENTATION AND INTERPRETATION
CHAPTER 5 POLICY RECOMMENDATION AND CONCLUSIONS
CHAPTER 1: INTRODUCTION
1.0 INTRODUCTION
Since 2001 Zimbabwe has experienced rates of inflation above 100% annually, since 2006 this rose over 1,500% annually. Using a newly created price series we show that in September 2006 monthly inflation exceeded 50% per month entering an extended period of hyperinflation, as defined by Cagan (1956). Currently Zimbabwe is the only country with a hyper inflated economy and is the first case of hyperinflation as yet recorded in the 21st century. The authorities in Zimbabwe view the recent high inflation period through two prisms. First that private sector price speculation is driving the inflation. This tense atmosphere severely affected the demand for money in Zimbabwe.
The authorities maintain that the private sector bids up prices speculatively in order to maximize profits and exert extreme pressure on the economy through these large prices increases.`Speculation has surfaced at an alarming pace in virtually all sectors of the economy, with the demand for cash in the economy rising at astronomical rates, as people are positioning themselves to take advantage of rent-seeking opportunities.' RBZ (2006)
Second authorities in Zimbabwe maintain that negative aid shocks and international sanctions have contributed to the economic decline since 2000, including the high inflation rate. Zimbabwe has experienced development assistance and external financing shocks as access to International Finance Institution (IFI), European Union
DEPARTMENT OF ECONOMICS
PROGRAMME: B. COMM. ECONOMICS HONOURS DEGREE
MODULE: ECONOMETRICS B (EC409)
Determinants of money demand in Zimbabwe from 1980-2008
TABLE OF CONTENT
CHAPTER 1 INTRODUCTION
CHAPTER 2 LITERATURE REVIEW
CHAPTER 3 METHODOLOGY
CHAPTER 4 RESULTS PRESENTATION AND INTERPRETATION
CHAPTER 5 POLICY RECOMMENDATION AND CONCLUSIONS
CHAPTER 1: INTRODUCTION
1.0 INTRODUCTION
Since 2001 Zimbabwe has experienced rates of inflation above 100% annually, since 2006 this rose over 1,500% annually. Using a newly created price series we show that in September 2006 monthly inflation exceeded 50% per month entering an extended period of hyperinflation, as defined by Cagan (1956). Currently Zimbabwe is the only country with a hyper inflated economy and is the first case of hyperinflation as yet recorded in the 21st century. The authorities in Zimbabwe view the recent high inflation period through two prisms. First that private sector price speculation is driving the inflation. This tense atmosphere severely affected the demand for money in Zimbabwe.
The authorities maintain that the private sector bids up prices speculatively in order to maximize profits and exert extreme pressure on the economy through these large prices increases.`Speculation has surfaced at an alarming pace in virtually all sectors of the economy, with the demand for cash in the economy rising at astronomical rates, as people are positioning themselves to take advantage of rent-seeking opportunities.' RBZ (2006)
Second authorities in Zimbabwe maintain that negative aid shocks and international sanctions have contributed to the economic decline since 2000, including the high inflation rate. Zimbabwe has experienced development assistance and external financing shocks as access to International Finance Institution (IFI), European Union