Is Money Supply the Cause of Inflation in Zimbabwe? An Empirical Examination

Alexander Maune (), Ephraim Matanda () and Justice Mundonde ()
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Alexander Maune: University of South Africa
Ephraim Matanda: Great Zimbabwe University
Justice Mundonde: University of the Witwatersrand

Acta Universitatis Danubius. OEconomica, 2020, issue 16(3), 17-37

Abstract: In this article, we used a multiple linear regression model to empirically examine the nexus between money supply and inflation in Zimbabwe during the period 1980 to 2019. To obtain an in depth analysis of that relationship, data were obtained from IMF – International Financial Statistics, World Bank and other credible, reliable and valid sources. Our empirical results show that inflation was directly related to money supply and inversely related to exchange rates and fiscal deficits in Zimbabwe for the period understudy. We, therefore, recommend that the growth of money supply should be made to match real economic growth as this was the basis of Milton Friedman’s monetary rule that holds inflation as a purely a monetary phenomenon that can only be produced by expanding the money supply at a faster rate than the growth of capacity output. This article is valuable to monetary authorities, economists, researchers and the public.

Keywords: Money Supply; M3; Inflation; Monetary policy; Empirical Examination (search for similar items in EconPapers)
Date: 2020
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