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    The role of money in the Zimbabwean economy: Post Dollarisation

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    Date
    2016-04
    Author
    Munguni, Bongai
    Type
    Thesis
    Metadata
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    Abstract
    Pre-dollarisation Zimbabwe experienced a period of high inflation rate and poor economic performance despite having excess liquidity. Post-dollarisation the country has been facing economic decline, deflation and serious liquidity crises. It is against this background that the study examined the role of money in the Zimbabwean economy. This was done by investigating the relationship between money supply, prices and output. Granger causality tests and Vector Auto-regression techniques were employed using the sample period from 2009/01 to 2015/03. Narrow and broad money supply measurements were considered. Volume of manufacturing index (VMI) was used to proxy output while consumer price index (CPI) was used to represent prices. The variables were not co-integrated thus the long run relationship among the variables was not found. The study found no evidence of Granger causality between broad money supply and output. Only a weak unidirectional causality running from output to narrow money supply was found. Impulse Response Functions and Variance Decompositions further suggested that these two variables do not significantly respond to each other in the short run as well as in the long run. These results support the propositions of the Real Business Cycle theory which states that money and output are independent variables. Prices were found to Granger cause narrow money supply while VMI Granger cause prices without any feedback. The policy implication arising from this study is that money does not matter for output growth and monetary policy does not play a significant role in influencing the level of economic activity in Zimbabwe post dollarisation. In short, an increase in money supply will not have an impact on output in the Zimbabwean economy. Hence any polices aimed at solving the liquidity crises will not be enough to address output growth challenges also. Prices are no longer responding to money supply movements as well in the multi-currency regime. Therefore the government has to look for other means in order to stimulate output or economic growth and to stabilize prices in Zimbabwe.
    URI
    https://hdl.handle.net/10646/4339
    Additional Citation Information
    Munguni, B. (2016). The role of money in the Zimbabwean economy: Post dollarisation. [Unpublished Masters thesis]. University of Zimbabwe.
    Publisher
    University of Zimbabwe
    Subject
    Pre-dollarisation
    Monetary Policy Statement
    United States Dollar
    International Monetary Fund
    Zimbabwean Dollar
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    • Faculty of Social and Behavioral Sciences e-Theses Collection [342]

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