Examining the Hypothesis of Money Neutrality in Zimbabwe from 1990-2017 · Electronic Theses and Dissertations

Author

Nyatsambo, Ashley

Title

Examining the Hypothesis of Money Neutrality in Zimbabwe from 1990-2017

Abstract

This research examines the hypothesis of money neutrality in Zimbabwe. After studying the
relevant literature on the effects of changes in money supply on real variables, it outlines the
research design for a macro level study on the impact of changes in money supply on real variables.
The hypothesis is that there is a positive relationship between money supply and real variables
(GDP). The objectives of the study were to establish how money supply affects GDP in Zimbabwe
as well as to determine which policy is superior than the other in Zimbabwe between monetary
policy and fiscal policy. The researcher used real GDP as the dependent variable whilst money
supply (M3), interest rate and government expenditure were used as explanatory variables. A VAR
model have been applied using the country’s macroeconomic data from 1990 to 2017 which was
obtained from ZIMSTATS and World Bank Open Data website. Impulse response functions and
variance decomposition were used to analyse the impact of the explanatory variables on real GDP.
The Impulse Response Functions and Variance Decomposition results suggest that money
positively affects real GDP in the short run but in the long run it is insignificant in influencing real
output. This means that in Zimbabwe, money is non-neutral in the short run, but neutral in the long
run. Government expenditure has an insignificant influence on GDP both in the short and long run
whilst interest rate has a positive effect on GDP in the long run. The recommendations are that the
government; should use expansionary monetary policy to increase real GDP, ensuring that any
increase in money supply must be matched by a corresponding increase in output so as to counter
the problem of inflation. demonetise the bond note as well as the RTGS and adopting the Rand,
and ensuring transparency in the manner in which loans are given.

Date

2023

Publisher

BUSE

Keywords

Hypothesis

Supervisor

N/A