Is inflation a monetary phenomenon?: a case study of Tanzania: 1966-2002.
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Date
2004
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Publisher
University of Dar es Salaam
Abstract
This study investigates whether or not monetary factors drive inflation in Tanzania: The study period spans the years 1966 to 2002. We take a lead at the recent development in times series econometrics by deriving and estimating a vector error correction model. The results from the Johansen test of cointegration show that there exists one cointegrating vector. We identify the cointegrating vector by making use economic logic and common sense. In particular, we examine the signs and magnitude of the coefficients on the cointegrating equation. Having verified the existence of cointegration, we formulate and estimate a dynamic error correlation model. The results show that, growth in real money, expected exchange rate depreciation have a short run effects on inflation while growths in real GDP and deficit financing has a long run effect. Specifically, we find that growth in real GDP has negative and significant influence on inflation. On the other hand, the growths in money supply, food shortage and depreciation of the exchange rate have a positive effect on inflation. Based on the available evidence, two overwhelming conclusions are reached. First, in the short run, the monetary authorities' anti-inflationary policy should target high growth in real GDP, sustained reduction in money supply and a stable exchange rate. Second, policies that induce high production of food should be pursued in the long run.
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Keywords
Inflation, Finance, Economic conditions, Tanzania
Citation
Minungu, V. C. (2004). Is inflation a monetary phenomenon?: a case study of Tanzania: 1966-2002. Masters dissertation, University of Dar es Salaam. Available at (http://41.86.178.3/internetserver3.1.2/detail.aspx?parentpriref=)