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Testing the Quantity Theory of Money in Zimbabwe under the Multiple Currency Regime: An ARDL Bound Testing Approach

Sunge Regret and Biatrice Simbisai Makamba

African Journal of Economic Review, 2020, vol. 08, issue 1

Abstract: Validity of the Quantity Theory of Money (QTM) continues to be heavily contested. The current examination is born out of the realization that there is no evidence for an economy using multiple currencies and deprived of monetary policy sovereignty. Using the Auto-Regressive Distributed-Lag approach to long-run association and co-integration analysis, we document weak evidence for the QTM for the period 01/01/2009-31/03/2018. However post-introduction of bond coins and notes in December 2014, we find sufficient evidence for the QTM. After controlling for other determinants, budget deficit was found to be the major peddler of inflation. We deduce that the multiple currency diluted the central bank’s discretion over monetary policy. We welcome the scraping of the multiple currency system. Nevertheless, to safeguard the abuse of the restored monetary policy sovereignty, we recommend money supply targeting as the primary monetary policy target.

Keywords: Financial Economics; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Date: 2020
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DOI: 10.22004/ag.econ.301051

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