Title:
MODELLING MONETARY STABILITY IN ZIMBABWE: GOING FORWARD OR BACKWARDS

Authors:
Shame Mukoka and Vicent Moyo , Zimbabwe

Abstract:
This study sought to determine the relationship between government expenditure and inflation in Zimbabwe. Unemployment, FDI, and Real GDP augmented the estimation model of the study. The study used Vector Error Correction Model which is key in determining relationship between variables, as well as the speed at which adjustments takes effect. ECM was found plausible for the study given that all variables’ data became stationary at first difference. Annual time series data for the period 1990 to 2019 were used. The results of the study confirmed a positive relationship between inflation and government expenditure for Zimbabwe, suggestive to a backward movement towards monetary stability. The study, recommends that since Zimbabwe is a developing economy, where government expenditure is more pronounced, expenditure should be directed towards productive sectors of the economy, such as manufacturing and agriculture, rather than recurrent expenditure. Reserve Bank of Zimbabwe must come up with monetary policies that enhance monetary stability. These includes policies that eliminates speculation in the stock exchange market, as well as contractionary monetary policy. Exchange rate policies must be solely determined by the Reserve Bank of Zimbabwe, with emphasis on revitalisation of Bureau Du Changes, by incentivising people to exchange their money in the formal financial platforms. Lastly, government should come up with punitive punishment on those violating exchange rate laws