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Assessing the Money, Exchange Rate, Price Links during Hyperinflationary Episodes in the Democratic Republic of the Congo

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  • Jean-Claude Maswana

    (Graduate School of Economics, Kyoto University)

Abstract

The determination of the causal pattern among inflation, money growth, and exchange rate has important implications for policymakers regarding appropriate stabilization policies in developing economies. Using Congolese data where the pace of broad money growth and hyperinflation (23,760% annual change) reached record levels in early 1990s, we use single-equation multivariate autoregressive models with the optimal lag selected using Hsiao's approach to Granger causality. Results indicate feedback causality between inflation and money growth on one side, and unidirectional Granger causality from money growth to the exchange rate and from the exchange rate to inflation on the other. These results suggest that the over-riding goal of disinflation needs to be accomplished initially by exchange rate stabilization, followed by a direct inflation targeting.

Suggested Citation

  • Jean-Claude Maswana, 2005. "Assessing the Money, Exchange Rate, Price Links during Hyperinflationary Episodes in the Democratic Republic of the Congo," Economics Bulletin, AccessEcon, vol. 15(19), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-05o50002
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    2. Zelealem Yiheyis & Emmanuel Cleeve, 2016. "Dynamics of the Real Exchange Rate, Inflation, and Output Growth: The Case of Malawi," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 23-39, October.

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    JEL classification:

    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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