This paper assesses the implications of changes in external debt on the effectiveness of monetary policy. The paper was motivated by the recent pace of external debt accumulation in SADC countries since 2010, which, in addition to presenting worrisome debt sustainability concerns, could also undermine the effectiveness of monetary policy.
Working Papers Series
The working paper series is intended to disseminate research conducted by Reserve Bank of Zimbabwe Staff on topics relevant to the Bank’s functions. Apart from disseminating the results of the Bank’s research, the working papers are published to elicit comments and stimulate policy debate. As such, they provide a conceptual and empirical basis for policy-making and contribute to the advancement of the Bank’s knowledge on economic matters. The working papers are considered to be “work in progress” and the views expressed are those of the authors and do not necessarily reflect the official views of the Reserve Bank of Zimbabwe.
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The study analyses the dynamics of output and formal employment in Zimbabwe at both aggregate and sectoral levels. The study uses a Markov Switching Error Correction Framework in order to take into account the relationship of output and employment in both the short and long run as well as taking into account the impact of business cycles. The study uses annual data from 1980 to 2016.
In the history of world economies, interest rates have perpetually occupied a central role in the formulation of effective monetary policy measures in both developed and developing countries. This largely stems from the critical role that interest rates play as the cost of capital in determining the deployment of surplus investable funds to key export and productive sectors of the economy (RBZ, 2014). In essence, the extent to which credit is extended to productive sectors is intricately bound to interest rate developments, which in turn determine the affordability of loans.
The nature and causes of sustained long-run economic growth have always stimulated intense debate by both economists and policymakers the world over. The scholarly debate about the set of policies needed to promote sustainable economic growth is of particular importance for developing countries and countries in transition. In recent decades, a large literature emerged that intends to explain the underlying mechanisms of sustained economic growth and to assist policymakers in choosing the right policies and reforms.
The adoption of multiple currencies in the aftermath of episodes of hyperinflation saw economic activity rebounding on the back of an improved business environment. In this regard, industrial capacity utilization improved from estimated levels of less than 10% in 2008 to 57.6% in 2012 on the back of relative price stability.
Zimbabwe experienced price stability since the adoption of multicurrency system in February 2009. The country has, however, been experiencing sustained decline in inflation since January 2012. This is against a background of massive declines in global food, mineral and oil commodity prices; appreciation of the US$ against the country’s major trading partner currencies and low domestic capacity utilization.
The debate on the relationship between inflation and economic growth gained momentum recently, following the work of Fischer (1993), who found a non-linear negative relationship between inflation and growth. This implies that inflation has a negative effect on growth only when it is above a certain threshold.