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

Author

Listed:
  • Alexander Maune

    (University of South Africa)

  • Ephraim Matanda

    (Great Zimbabwe University)

  • Justice Mundonde

    (University of the Witwatersrand)

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.

Suggested Citation

  • Alexander Maune & Ephraim Matanda & Justice Mundonde, 2020. "Is Money Supply the Cause of Inflation in Zimbabwe? An Empirical Examination," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 16(3), pages 17-37, JUNE.
    • Handle: RePEc:dug:actaec:y:2020:i:3:p:17-37
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    More about this item

    Keywords

    Money Supply; M3; Inflation; Monetary policy; Empirical Examination;
    All these keywords.

    JEL classification:

    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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