Article Sidebar

Submitted
November 21, 2021
Accepted
February 18, 2022
Published
February 18, 2022
Download
Download PDF
Statistic
Read Counter : 176

Main Article Content

Abstract

The importance of understanding behavioral economics for consumers is immense nowadays. According to the Keynesian economic theory, consumption depends on GDPGR or national income growth (elasticity of income) and CPI (purchasing power). The study on Zimbabwe’s GDPMPC effects, particularly on inflation in general and the 79.6 billion % hyperinflation in particular, seemed to attract many to learn the case.  It sought to observe the interaction pattern of the country’s consumption using a co-integration and Granger-causality analysis, which sought to answer the research questions and hypotheses. They led to answer the trends direction and stationarity of the economic indicators, Granger-causality relationship and the effects of GDPMPC as a model for long-range equilibrium. The analysis of the 38-year economic panel data demonstrated a significant time series co-integration of the GDPMPC effects, which had indicated a clear direction on the GDPGR and CPI, which triggered the hyperinflation with the following model: CEt-1 = 1.000 GDPMPC (consumption) t-1 + 0.554 GDPGR (national income) t-1 + 0.167 CPI (hyperinflation) t-1 + et.

Keywords

Augmented Dickey-Fuller test consumer price index GDP growth GDPMPC reserve bank of Zimbabwe vector autoregressive

Article Details

How to Cite
Nasution, E. J., & Mahaso, B. (2022). A Granger-Causality and Cointegration Analysis of Consumption Effects on Zimbabwe’s Hyperinflation and GDP Growth: A Model for Future Equilibrium. Pan-African Journal of Education and Social Sciences, 2(2). Retrieved from https://journals.aua.ke/pajes/article/view/103
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Ahmed, S. & Islam, M. E. (2005). Demand for money in Bangladesh: A cointegration analysis. The Bangladesh Development Studies, 31(1/2), 103-120. http://bids.org.bd/uploads/publication/BDS/31/31-1&2/05_Ahmed%20Islam.pdf
  2. Amadeo, K. (2020). Keynesian economic theory. The Balance, open-source publication. https://www.thebalance.com/keynesian-economics-theory-definition-4159776
  3. Barnes, C., Koegh C., Nemarundwe N. (2001). Microfinance program clients and impacts: An assessment of Zambuko Trust, Zimbabwe. United States Agency for International Development (USAID) AIMS. https://pdf.usaid.gov/pdf_docs/Pnacn576.pdf
  4. Carroll, C. D. (2001). The theory of consumption function, with and without liquidity constraints. Journal of Economic Perspectives, 15(3), 23-45.
  5. Chao, H. K. (2003). Milton Friedman and the emergence of the permanent income hypothesis. History of Political Economy, 35(1), 77-104.
  6. Chatziapostolou, T. (2019). Interpreting Keynes. A literature review of Keynes interpretations. University of Athens, Research Gate. https://www.researchgate.net/publication/330441942_Interpreting_Keynes_A_literature_review_of_Keynes_interpretations
  7. Chipaumire, G., Ngirande, H., & Ruswa, Y. (2014). The impact of government spending on economic growth: case South Africa. Mediterranean Journal of Social Sciences, 5(1), 109-118.
  8. Costanza, R., Hart, M., Posner, S., & Talberth, J. (2009). Beyond GDP: The need for new measures of progress. The Pardee Papers, No. 4. Pardee Center for Study of the Longer-Range Future, Boston. https://www.bu.edu/pardee/files/documents/PP-004-GDP.pdf
  9. Davies, R. & Rattso, J. (1996). Growth, distribution and environment: Macroeconomic issues in Zimbabwe. World Development, 24(2), 395-405.
  10. Deaton, A. (2005). Modligiani and the life-cycle theory of consumption. BNL Quarterly Review, 58 (233/234), 91-107.
  11. Ersado L. (2005). Income diversification before and after economic shocks: evidence from urban and rural Zimbabwe. Development Southern Africa (22) 1, 27-45.
  12. Engle & Granger (1987). Co-integration and error correction: Representation, estimation and testing. Econometrica, 55(2), 251-276.
  13. Federal Reserve Bank of Dallas (2011). Hyperinflation in Zimbabwe. Globalization and Monetary Policy Institute. Annual Report, 9. https://www.dallasfed.org/~/media/documents/institute/annual/2011/annual11.pdf
  14. Ferraro, V. (2008). Dependency theory: An introduction. In S. Giorgio (Ed.), The Development Economics Reader (pp. 58-64). London: Routledge.
  15. Friedman, M. (1957). A Theory of Consumption Function – Permanent Income Hypothesis. Princeton University Press (National Bureau of Economic Research open access publication), 20-37. https://www.nber.org/books-and-chapters/theory-consumption-function
  16. Gochero, P. & Boopen, S. (2020). The effects of mining FDI inflow on the economic growth of Zimbabwe. Economic Structures (9), 54.
  17. Gwenhamo, F. (2009). FDI in Zimbabwe: The role of institutional factors., Working Paper Series, 144, 17. University of Cape Town https://www.econrsa.org/system/files/publications/working_papers/wp144.pdf
  18. Iftekhar, U., Mamoon D., Hassan M. S. (2017). How government policy and demographics affect money demand function in Bangladesh. Turkish Economic Review, 4(1), 73.
  19. Johansen, S. (2009). Cointegration: Overview and development. in T.G. Andersen, R. Davis, J-P. Kreiss, and T.
  20. Mikosch (Eds.), Handbook of Financial Time Series, (pp. 671–693). Springer.
  21. Kairiza, T. (2009). Unbundling Zimbabwe’s journey to hyperinflation and official dollarization. GRIPS Policy Information Center, Discussion paper No. 09-12, 7. https://www.grips.ac.jp/r-center/wp-content/uploads/09-12.pdf
  22. Kim, Y. K., Setterfield, M., Mei, Y. (2014). A theory of aggregate consumption. European Journal of Economics and Economic Policies: Intervention. 11, (1), 31-49. Research Collection School of Economics
  23. Kavila, W. & Roux, P. L. (2017). The role of monetary policy in Zimbabwe’s hyperinflation episode. African Review of Economics and Finance journal, 9(2), 131-166.
  24. Keynes, M. J. (1938). Mr. Keynes’ consumption function. Quarterly Journal of Economics, 53(1), 160.
  25. Makochekanwa, K. (2007). A dynamic enquiry into the causes of hyperinflation in Zimbabwe. Working Paper Series 2007-10. University of Pretoria. https://www.up.ac.za/media/shared/Legacy/UserFiles/wp_2007_10.pdf
  26. Mazikana, A. T. (2017). Zimbabwe is currently experiencing a de-industrialization trend. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2929593
  27. Maune, A., Matanda E., Mundonda, J. (2020). Is money supply the cause of inflation in Zimbabwe? an empirical examination. CEconomica Journal, 16(3), 17-37.
  28. Modigliani, F. (1966). The life cycle hypothesis of savings, the demand for wealth and the supply of capital. Social Research, 33(2), 160-217.
  29. Munangagwa, C.L. (2009). The economic decline of Zimbabwe. The Gettysburg Economic Review, 3(9), 7, 110-129.
  30. Bjurek, H., Durevall, D., & Ndlela, D. (2002). Macroeconomic policies and the manufacturing sector. In C. Mumbengegwi (author), Macroeconomic and structural adjustment policies in Zimbabwe (pp. 265-283). Palgrave Macmillan.
  31. Nkomazana, L. and Niyimbanira, F. (2014). An overview of the economic causes and effects of dollarization: Case of Zimbabwe. Mediterranean Journal of Social Science, 5(7), 70-71.
  32. Munjeyi, E., Mutasa, S., Maponga S., Muchuchuti, K. (2017). The informal sector tax revenue potential: A case of Zimbabwe. Research Journal of Finance & Accounting, 8(8), 142-146.
  33. Schwarzer, J. A. (2018). Cost-push and demand-pull inflation: Milton Friedman and the “cruel dilemma.” Journal of Economic Perspectives, 32(1), 195-210.
  34. Sidikki, J. U. (2010). Demand for money in Bangladesh: A cointegration analysis. Applied Economics, 32, 2000 (15), 35.
  35. Sikwila, M. N., Karedza, G., & Sikwila, Y. L. (2017). Foreign direct investment inflows into Zimbabwe. Mediterranean Journal of Social Sciences, 8(5 S1), 43-52.
  36. Utoikamanu, F. (2019). Closing the technology gap in least developed countries. UN Chronicle, 55(4), 35-38.
  37. Zhou, H., Pindiriri, C., & Tambama, J. (2013). Consumption response to diaspora remittances in Zimbabwe. Botswana Journal of Economics, 11(15), 32-41.