Is Money Supply the Cause of Inflation in Zimbabwe? An Empirical Examination
Keywords:
Money Supply; M3; Inflation; Monetary policy; Empirical Examination; ZimbabweAbstract
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.
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(1981 – 2015). CBN Journal of Applied Statistics, 7: pp. 255-276.
Bleaney, Michael & Manuela, Francisco. (2016). Inflation and fiscal deficits in sub-Saharan Africa.
Journal of African Economies, 25(4): pp. 529-547. https://doi.org/10.1093/jae/ejw009.
Bozkurt, Cuma. (2014). Money, inflation and growth relationship: The Turkish case. International
Journal of Economics and Financial Issues, 4(2): pp. 309-329.
Cachanosky, Nicolas. (2009). The Definition of Inflation According to Mises: Implications for the
Debate on Free Banking. Libertarian Papers, 1(43): pp. 1-12.
Chaudhary, Mohammad, Aslam, & Naved, Ahmed. (1995). Money supply, deficit and inflation in
Pakistan. The Pakistan Development Review, 34(4): pp. 945-995.
Darrat, F. Ali. (1986). Money, inflation and causality in North Africa countries: An empirical
investigation. Journal of Macroeconomics, 8(1): pp. 87-103.
Diermeier, Matthias & Henry Goecke. (2016). Money supply and inflation in Europe: Is there still a
connection? IW Policy Paper, No. 17/2016E. Institut der deutschen Wirtschaft (IW), Köln.
Diof, A. Mame. (2007). Modeling Inflation for Mali. International Monetary Fund. IMF Working
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to Dollarisation. Economic Management under Hyperinflationary Environment: Lessons from
Zimbabwe. Ed. George Kararach and Raphael O. Otieno. Oxford: Oxford University Press.
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National Bureau of Economic Research.
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Gatawa, M. Nasiru; Akinola, Abdulgafar & Muftau, Olarinde. (2017). Impact of Money Supply and
Inflation on Economic Growth in Nigeria (1973-2013). IOSR Journal of Economics and Finance, 8:
pp. 26-37. DOI: 10.9790/5933-0803042637.
Gungor, Cahit & Berk, Ali. (2006). Money supply and Inflation relationship in the Turkish Economy.
Journal of Applied Science, 6(9): pp. 2083-2087.
Jariwala, S. Vijay. (2018). Empirical Study of Money Supply and Inflation in India Using Econometric
Techniques. Available at SSRN: https://ssrn.com/abstract=3244193.
Jones, D. Jonathan, & Nasir, M. Khilji. (1988). Money growth, inflation, and causality (Empirical
Evidence for Pakistan, 1973—1985). The Pakistan Development Review, 27(1): pp. 45-58.
Kabundi, Alain. (2012). Dynamics of Inflation in Uganda. Working Paper Series, No 152, African
Development Bank, Tunis.
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Kavila, William & Pierre, Le Roux. (2017). The role of monetary policy in Zimbabwe’s hyperinflation
episode. African Review of Economics and Finance, 9(2): pp. 131-166.
Keller, Gerald. (2017). Statistics for Management and Economics (11th Ed.). Boston: Congage.
Kiganda, O. Evans. (2014). Relationship between Inflation and Money Supply in Kenya. Journal of
Social Economics, 2(2): pp. 63-83.
Koyuncu, Fatma, Turan. (2014). Causality network between budget deficit, money supply and inflation:
An application to Turkey. International Journal of Business and Social Science, 5(10): pp. 54-65.
Lahiri, Ashok, Kumar. (1991). Money and inflation in Yugoslavia. Staff Papers (International
Monetary Fund), 38(4): pp. 751-788. DOI: 10.2307/3867124.
Lim, Cheng, Hoon, & Laura Papi. (1997). An econometric analysis of the determinants of Inflation in
Turkey. IMF Working Paper No. WP/97/170. International Monetary Fund, Washington, DC.
Makinen, E. Gail, & Thomas, G. Woodward. (1989). The Taiwanese hyperinflation and stabilization
of 1945-1952. Journal of Money, Credit and Banking, 21(1): pp. 90-121.
Mandishara, Leonard & Mupamhadzi, David. (2016). Relegating the Core Business: The Case of the
Reserve Bank of Zimbabwe Undertaking Quasi-Fiscal Activities, 2000–08. Economic Management in
a Hyperinflationary Environment: The Political Economy of Zimbabwe, 1980–2008. Ed. George
Kararach and Raphael O. Otieno. Oxford: Oxford University Press.
Mises, von Ludwig. (1953). The Theory of Money and Credit (trans. H.E. Batson). London: Jonathan
Cape.
Monfared, Sanam, Shojaeipour & Fetullah ,Akın. (2017). The Relationship between Exchange Rates
and Inflation: The Case of Iran. European Journal of Sustainable Development, 6(4): pp. 329-329.
Morana, Claudio & Fabio C. Bagliano. (2007). Inflation and monetary dynamics in the USA: A quantity
–theory approach. Economics, 39: pp. 229–244. DOI: 10.1080/00036840500428047.
Ndanshau, A. Michael. (2010). Money and other determinants of inflation: the case of Tanzania. Indian
Journal of Economics and Business, 9(3).
Ndanshau, A. Michael. (2012). Budget deficits, money supply and inflation in Tanzania: A Multivariate
Granger causality test, 1967- 2010. University of Dar es Salaam working paper No. 04/12.
Nguyen, Bon. (2015). Effects of fiscal deficit and money M2 supply on inflation: Evidence from
selected economies of Asia. Journal of Economics, Finance and Administrative Science, 20(38): pp.
49-53. https://doi.org/10.1016/j.jefas.2015.01.002.
Nhavira, D. John. (2009). Does Money growth still Granger cause Inflation and Economic growth in
Zimbabwe 1991 – 2005? Harare: Southern Bureau of Strategic Studies Trust.
Nikolic, Milan. (2000). Money growth–inflation relationship in post-communist Russia. Journal of
Comparative Economics, 28: pp. 108–133.
Obi, O. Kenneth & Ajana A. Uzodigwe. (2015). Dynamic Impact of Money Supply on Inflation:
Evidence from ECOWAS Member States. IOSR Journal of Economics and Finance (IOSR-JEF), 6(3):
pp. 10-17. DOI: 10.9790/5933-06331017.
Odiba, O. Emmanuel; Sunday A. Apeh & Johnson E. Daniel. (2013). Money supply and inflation in
Nigeria 1986-2009. Journal of Business and Organizational Development, 5(1): pp. 35-53.
Ofori, Collins; Frimpong, Benjamin, Adjei, Danquah & Xuegong, Zhang. (2017). The Impact of Money
Supply on Inflation: A Case of Ghana. Imperial Journal of Interdisciplinary Research (IJIR), 3(1): pp.
2312-2318.
Olorunfemi, Sola, & Peter Adeleke. (2013). Money supply and inflation in Nigeria: Implications for
national development. Modern Economy, 4(3): pp. 161-170. http://dx.doi.org/10.4236/me.2013.43018.
Pindiriri, Carren. (2012). Monetary reforms and inflation dynamics in Zimbabwe. International
Research Journal of Finance and Economics, 90: pp. 207-222.
Polan, Magdalena & De Grauwe, Paul. (2005). Inflation is always and everywhere a monetary
phenomenon. The Scandinavian Journal of Economics, 107(2): pp. 239–259. DOI: 10.1111/j1467-
9442.2005.00406.x.
Qayyum, Abdul. (2006). Money, Inflation, and Growth in Pakistan. The Pakistan Development Review,
45(2): pp. 203–212. DOI: 10.30541/v45i2pp.203-212.
Rothbard, N. Murray. (2009). The Essential von Mises. Alabama: The Ludwig von Mises Institute.
Sabade, Shubhada. (2014). Is money supply the cause of inflation in India? An alternative postulate to
understand inflation. Procedia - Social and Behavioral Sciences, 133: pp. 379 – 382. Doi:
10.1016/j.sbspro.2014.04.204.
Shostak, Frank. (2002). Defining Inflation. Mises Daily, March 6. https://mises.org/library/defininginflation.
Simwaka, Kisu; Ligoya, Perks; Kabango, Grant & Chikonda, Mtendere. (2012). Money supply and
inflation in Malawi: An econometric Investigation. Journal of Economics and International Finance,
4(2): pp. 36–48. DOI: 10.5897/JEIF11.138.
Tang, Chor, Foon & Hooi Hooi, Lean. (2007). Is the Phillips curve stable for Malaysia? New Empirical
Evidence. Malaysian Journal of Economic Studies, 44(2): pp. 95-105.
Thornton, John. (2008). Money, output and inflation in African economies. South African Journal of
Economics, 76(3): pp. 356-366. https://doi.org/10.1111/j.1813-6982.2008.00199.x.
Tyrkalo, Roman & Bohdan, Adamyk. (1999). Monetary policy transmission and its meaning to the
effectiveness of NBU activity. Herald of NBU, 7(6): pp. 11-22.
Us, Vuslat. (2004). Inflation dynamics and monetary policy strategy: Some aspects for the Turkish
economy. Journal of Policy Modeling, 26(8-9): pp. 1003–1013. DOI: 10.1016/j.jpolmod.2004.07.001.
Waingade, A. Rajkumar. (2011). Money supply and inflation: An historical analysis. The IUP Journal
of Monetary Economics, IX (1): pp. 22-45.
Zhang, Chengsi. (2013). Monetary Dynamics of Inflation in China. The World Economy, 36(6): pp.
737-760. http://dx.doi.org/10.1111/twec.12021.
monetary policy in macroeconomic management in Nigeria. African Economic and Business Review,
3(1), pp. 23-40.
Aikaeli, Jehovanesss. (2007). Money and inflation dynamics: A lag between change in money supply
and the corresponding inflation response in Tanzania. Working papers series. DOI:
10.2139/ssrn.1021227.
Akinbobola, O., Temidayo. (2012). The dynamics of money supply, exchange rate and inflation in
Nigeria. Journal of Applied Finance and Banking, 2(4): pp. 117-141.
Altimari, S., Nicoletti. (2001). Does money lead inflation in euro area? European Central Research
Center, Working Paper No.63: pp. 1-51.
Amassoma, Ditimi; Sunday, Keji & Emma-Ebere, Onyedikachi. (2018). The influence of money supply
on inflation in Nigeria. Journal of Economics and Management, 31(1): pp. 5-23. DOI:
10.22367/jem.2018.31.01.
Ayubu, S., Victoria. (2013). Monetary Policy and Inflation Dynamics: An empirical case study of
Tanzanian economy. Master’s thesis. UMEA Universitet.
Bawa, Sani; Ismaila, Abdullahi & Adamu, Ibrahim. (2016). Analysis of Inflation Dynamics in Nigeria
(1981 – 2015). CBN Journal of Applied Statistics, 7: pp. 255-276.
Bleaney, Michael & Manuela, Francisco. (2016). Inflation and fiscal deficits in sub-Saharan Africa.
Journal of African Economies, 25(4): pp. 529-547. https://doi.org/10.1093/jae/ejw009.
Bozkurt, Cuma. (2014). Money, inflation and growth relationship: The Turkish case. International
Journal of Economics and Financial Issues, 4(2): pp. 309-329.
Cachanosky, Nicolas. (2009). The Definition of Inflation According to Mises: Implications for the
Debate on Free Banking. Libertarian Papers, 1(43): pp. 1-12.
Chaudhary, Mohammad, Aslam, & Naved, Ahmed. (1995). Money supply, deficit and inflation in
Pakistan. The Pakistan Development Review, 34(4): pp. 945-995.
Darrat, F. Ali. (1986). Money, inflation and causality in North Africa countries: An empirical
investigation. Journal of Macroeconomics, 8(1): pp. 87-103.
Diermeier, Matthias & Henry Goecke. (2016). Money supply and inflation in Europe: Is there still a
connection? IW Policy Paper, No. 17/2016E. Institut der deutschen Wirtschaft (IW), Köln.
Diof, A. Mame. (2007). Modeling Inflation for Mali. International Monetary Fund. IMF Working
paper, WP/07/295: pp. 1-34. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Modeling-
Inflation-for-Mali-21518 (accessed March 22, 2020).
Drevall, Dick & Njuguna, S. Ndung’u. (2001). A dynamic model of inflation for Kenya, 1974 – 1996.
Journal of African Economies, 10(1): pp. 92-125.
Ellyne, Mark & Michael Dally. (2016). Zimbabwe’s Monetary Policy 1998-2012: From Hyperinflation
to Dollarisation. Economic Management under Hyperinflationary Environment: Lessons from
Zimbabwe. Ed. George Kararach and Raphael O. Otieno. Oxford: Oxford University Press.
Friedman, Milton, & Kuznets, Simon. (1945). Income from Independent Professional. New York:
National Bureau of Economic Research.
Garrison, W. Roger. (2007). Hayek and Friedman: Head to Head. New Orleans: Sea Meetings.
Gatawa, M. Nasiru; Akinola, Abdulgafar & Muftau, Olarinde. (2017). Impact of Money Supply and
Inflation on Economic Growth in Nigeria (1973-2013). IOSR Journal of Economics and Finance, 8:
pp. 26-37. DOI: 10.9790/5933-0803042637.
Gungor, Cahit & Berk, Ali. (2006). Money supply and Inflation relationship in the Turkish Economy.
Journal of Applied Science, 6(9): pp. 2083-2087.
Jariwala, S. Vijay. (2018). Empirical Study of Money Supply and Inflation in India Using Econometric
Techniques. Available at SSRN: https://ssrn.com/abstract=3244193.
Jones, D. Jonathan, & Nasir, M. Khilji. (1988). Money growth, inflation, and causality (Empirical
Evidence for Pakistan, 1973—1985). The Pakistan Development Review, 27(1): pp. 45-58.
Kabundi, Alain. (2012). Dynamics of Inflation in Uganda. Working Paper Series, No 152, African
Development Bank, Tunis.
https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/WPS%20Nos%20152%20Dyn
amics%20of%20Inflation%20in%20Uganda.pdf (accessed March 22, 2020).
Kavila, William & Pierre, Le Roux. (2017). The role of monetary policy in Zimbabwe’s hyperinflation
episode. African Review of Economics and Finance, 9(2): pp. 131-166.
Keller, Gerald. (2017). Statistics for Management and Economics (11th Ed.). Boston: Congage.
Kiganda, O. Evans. (2014). Relationship between Inflation and Money Supply in Kenya. Journal of
Social Economics, 2(2): pp. 63-83.
Koyuncu, Fatma, Turan. (2014). Causality network between budget deficit, money supply and inflation:
An application to Turkey. International Journal of Business and Social Science, 5(10): pp. 54-65.
Lahiri, Ashok, Kumar. (1991). Money and inflation in Yugoslavia. Staff Papers (International
Monetary Fund), 38(4): pp. 751-788. DOI: 10.2307/3867124.
Lim, Cheng, Hoon, & Laura Papi. (1997). An econometric analysis of the determinants of Inflation in
Turkey. IMF Working Paper No. WP/97/170. International Monetary Fund, Washington, DC.
Makinen, E. Gail, & Thomas, G. Woodward. (1989). The Taiwanese hyperinflation and stabilization
of 1945-1952. Journal of Money, Credit and Banking, 21(1): pp. 90-121.
Mandishara, Leonard & Mupamhadzi, David. (2016). Relegating the Core Business: The Case of the
Reserve Bank of Zimbabwe Undertaking Quasi-Fiscal Activities, 2000–08. Economic Management in
a Hyperinflationary Environment: The Political Economy of Zimbabwe, 1980–2008. Ed. George
Kararach and Raphael O. Otieno. Oxford: Oxford University Press.
Mises, von Ludwig. (1953). The Theory of Money and Credit (trans. H.E. Batson). London: Jonathan
Cape.
Monfared, Sanam, Shojaeipour & Fetullah ,Akın. (2017). The Relationship between Exchange Rates
and Inflation: The Case of Iran. European Journal of Sustainable Development, 6(4): pp. 329-329.
Morana, Claudio & Fabio C. Bagliano. (2007). Inflation and monetary dynamics in the USA: A quantity
–theory approach. Economics, 39: pp. 229–244. DOI: 10.1080/00036840500428047.
Ndanshau, A. Michael. (2010). Money and other determinants of inflation: the case of Tanzania. Indian
Journal of Economics and Business, 9(3).
Ndanshau, A. Michael. (2012). Budget deficits, money supply and inflation in Tanzania: A Multivariate
Granger causality test, 1967- 2010. University of Dar es Salaam working paper No. 04/12.
Nguyen, Bon. (2015). Effects of fiscal deficit and money M2 supply on inflation: Evidence from
selected economies of Asia. Journal of Economics, Finance and Administrative Science, 20(38): pp.
49-53. https://doi.org/10.1016/j.jefas.2015.01.002.
Nhavira, D. John. (2009). Does Money growth still Granger cause Inflation and Economic growth in
Zimbabwe 1991 – 2005? Harare: Southern Bureau of Strategic Studies Trust.
Nikolic, Milan. (2000). Money growth–inflation relationship in post-communist Russia. Journal of
Comparative Economics, 28: pp. 108–133.
Obi, O. Kenneth & Ajana A. Uzodigwe. (2015). Dynamic Impact of Money Supply on Inflation:
Evidence from ECOWAS Member States. IOSR Journal of Economics and Finance (IOSR-JEF), 6(3):
pp. 10-17. DOI: 10.9790/5933-06331017.
Odiba, O. Emmanuel; Sunday A. Apeh & Johnson E. Daniel. (2013). Money supply and inflation in
Nigeria 1986-2009. Journal of Business and Organizational Development, 5(1): pp. 35-53.
Ofori, Collins; Frimpong, Benjamin, Adjei, Danquah & Xuegong, Zhang. (2017). The Impact of Money
Supply on Inflation: A Case of Ghana. Imperial Journal of Interdisciplinary Research (IJIR), 3(1): pp.
2312-2318.
Olorunfemi, Sola, & Peter Adeleke. (2013). Money supply and inflation in Nigeria: Implications for
national development. Modern Economy, 4(3): pp. 161-170. http://dx.doi.org/10.4236/me.2013.43018.
Pindiriri, Carren. (2012). Monetary reforms and inflation dynamics in Zimbabwe. International
Research Journal of Finance and Economics, 90: pp. 207-222.
Polan, Magdalena & De Grauwe, Paul. (2005). Inflation is always and everywhere a monetary
phenomenon. The Scandinavian Journal of Economics, 107(2): pp. 239–259. DOI: 10.1111/j1467-
9442.2005.00406.x.
Qayyum, Abdul. (2006). Money, Inflation, and Growth in Pakistan. The Pakistan Development Review,
45(2): pp. 203–212. DOI: 10.30541/v45i2pp.203-212.
Rothbard, N. Murray. (2009). The Essential von Mises. Alabama: The Ludwig von Mises Institute.
Sabade, Shubhada. (2014). Is money supply the cause of inflation in India? An alternative postulate to
understand inflation. Procedia - Social and Behavioral Sciences, 133: pp. 379 – 382. Doi:
10.1016/j.sbspro.2014.04.204.
Shostak, Frank. (2002). Defining Inflation. Mises Daily, March 6. https://mises.org/library/defininginflation.
Simwaka, Kisu; Ligoya, Perks; Kabango, Grant & Chikonda, Mtendere. (2012). Money supply and
inflation in Malawi: An econometric Investigation. Journal of Economics and International Finance,
4(2): pp. 36–48. DOI: 10.5897/JEIF11.138.
Tang, Chor, Foon & Hooi Hooi, Lean. (2007). Is the Phillips curve stable for Malaysia? New Empirical
Evidence. Malaysian Journal of Economic Studies, 44(2): pp. 95-105.
Thornton, John. (2008). Money, output and inflation in African economies. South African Journal of
Economics, 76(3): pp. 356-366. https://doi.org/10.1111/j.1813-6982.2008.00199.x.
Tyrkalo, Roman & Bohdan, Adamyk. (1999). Monetary policy transmission and its meaning to the
effectiveness of NBU activity. Herald of NBU, 7(6): pp. 11-22.
Us, Vuslat. (2004). Inflation dynamics and monetary policy strategy: Some aspects for the Turkish
economy. Journal of Policy Modeling, 26(8-9): pp. 1003–1013. DOI: 10.1016/j.jpolmod.2004.07.001.
Waingade, A. Rajkumar. (2011). Money supply and inflation: An historical analysis. The IUP Journal
of Monetary Economics, IX (1): pp. 22-45.
Zhang, Chengsi. (2013). Monetary Dynamics of Inflation in China. The World Economy, 36(6): pp.
737-760. http://dx.doi.org/10.1111/twec.12021.
Published
2020-07-13
How to Cite
Maune, A. ., Matanda, E. ., & Mundonde, J. . (2020). Is Money Supply the Cause of Inflation in Zimbabwe? An Empirical Examination: Array. Acta Universitatis Danubius. Œconomica, 16(3). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/372
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