Does Money-growth Still Granger Cause Inflation and Economic Growth in Zimbabwe

Abstract

The purpose of this study is to analyze, in the light of Zimbabwe's economic crisis, whether there is a stable and predictable relationship between monetary aggregates and macroeconomic variables such as output and prices. The study seeks to assess the relevance of the curr~nt designated intermediate target M3 in policy formulation. The relevance of the monetary aggregate is tested using Granger Causaliry tests and VAR on annual data for the period 1991-1005. This study offers insights on lessons to be learnt from a monetary targeting regime and in So doing fill gaps in the literature focusing on this issue. Evidence points to the fact that monetary aggregates are no longer relevant in Zitnbabwe and that targeting of M3 and reservesshould be discontinued in favour of an inflation or interest rate target