Zaïre’s Hyperinflation, 1990-96

IMF Working Papers, April 1, 1997

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This paper reviews Zaïre’s experience with hyperinflation during 1990-96.
Develops an illustrative model based on a money demand function that includes government revenue as a determinant.
Notes that government revenue is subject to the “Tanzi effect,” in which inflation tends to lower revenue collections.
The model is estimated over the 1990-96 period, and simulations are presented.
Concludes with observations and policy recommendations for stopping hyperinflation in Zaïre.

Core modeling approach: money demand function that incorporates government revenue as a determinant.
Government revenue dynamics: explicitly modeled to capture the Tanzi effect (inflation-induced erosion of revenue collections).
Empirical scope: model estimated over the 1990-96 period.
Analysis includes simulation exercises based on the estimated model.

Hyperinflation dynamics in Zaïre during 1990-96 are driven by interactions between money demand, monetary base, and government revenue.
The Tanzi effect plays a material role in reducing government revenue during periods of high inflation.
Simulations illustrate the model-consistent paths of monetary variables and fiscal-revenue responses over the 1990-96 sample.

The paper concludes with a number of observations and policy recommendations aimed at stopping hyperinflation in Zaïre.
Recommendations are oriented toward restoring monetary and fiscal balance by addressing:
- stabilization of money demand and monetary base dynamics;
- mitigation of the Tanzi effect on government revenue;
- coordinated fiscal and monetary measures to break inflationary feedback loops.

Zaire's Hyperinflation, 1990-96 - WP/97/50
- Zaire's Hyperinflation, 1990-96 - WP/97/50 (Markdown version)
- Zaire's Hyperinflation, 1990-96 - WP/97/50 (PDF)