Suppressed Inflation and Money Demand in Zimbabwe

 
Author/Editor: Muñoz, Sònia
 
Publication Date: January 01, 2006
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: The paper investigates the divergence between inflation and monetary expansion in Zimbabwe since late 2003. The substantial decline in velocity and increasing levels of real money balances during 2004 are at odds with a record of inflation closely tracking the growth rates of monetary aggregates in the past. Possible explanations for the divergence include an unstable demand for money, a sudden shift in the underlying demand for real balances due to a sharp change in an explanatory variable, and a structural break or aberration in a normally stable money demand relation reflecting some unexplained factor such as repressed inflation (given administered prices) or measurement errors in the consumer price index. The results of the study point to the last possibility as the most likely explanation.
 
Series: Working Paper No. 06/15
Subject(s): Inflation | Zimbabwe | Demand for money | Price controls | Economic models

Author's Keyword(s): Inflation | money demand | administered prices | repressed regime
 
English
Publication Date: January 01, 2006
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2006015 Pages: 20
Price:
US$15.00 (Academic Rate:
US$15.00 )
 
 
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