Date of Award

6-2010

Document Type

Union College Only

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Bradley Lewis

Language

English

Keywords

inflation, money, velocity, data, clear

Abstract

Hyperinflation, defined as inflation of over 50 percent month-over-month, in Zimbabwe began in March 2007. However, the economy has been plagued with annual inflation of over 20 percent since the early 1990s. Once regarded as the bread basket of Africa, Zimbabwe’s political mismanagement has destroyed its own economic wellbeing. Were the government and central bank so ignorant as to lead the economy down this path? This study examines the political issues surrounding monetary mismanagement and the clear disregard for monetary theory. In addition, Irving Fisher’s Equation of Exchange is used to examine Zimbabwean money supply velocity for a period of almost 30 years. I examine velocity before and during the dramatic rise in inflation. In order to investigate this variable, I used data from the World Development Indicators Database to compile nominal GDP and money supply (M2) figures. While this data are available from 1980 to 2007, accurate measurement of any economic data was compromised in the late 2000s because of hyperinflation. Factors such as a shortage of food and cash combined with rapid increases in prices do not provide a clear theoretical direction for money velocity. Results show a dramatic fall in money velocity beginning in 2000 due to consumers refusing to do transactions in the local currency. The level of inflation as well as the lack of confidence in the government caused people to use the South African rand and U.S. dollar instead.

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