- Title
- The impact of external shocks on economic performance and policy responses in Zimbabwe
- Creator
- Manda, Smart
- Subject
- Macroeconomics
- Subject
- Economic forecasting -- Zimbabwe Economic development -- Zimbabwe Zimbabwe -- Economic conditions -- 21st century Developing countries -- Economic conditions
- Date Issued
- 2017
- Date
- 2017
- Type
- Thesis
- Type
- Doctoral
- Type
- DPhil
- Identifier
- http://hdl.handle.net/10948/18354
- Identifier
- vital:28626
- Description
- This study analysed the impact of external shocks on macroeconomic performance and policy responses in Zimbabwe for the period spanning from 2009 to 2016. The study was motivated by the rising global economic vulnerabilities following the global economic and financial crisis experienced between 2007 and 2009. The study was also in response to the concern by the Zimbabwean government that external shocks had become increasingly important in influencing macroeconomic developments in Zimbabwe. In view of the intensifying debate on external shocks, the study, therefore, sought to understand the impact of external shocks on economic performance and policy responses in Zimbabwe. The study contributes to empirical literature by assessing the relative contribution of external shocks in explaining business cycles, the main transmission mechanisms of the macroeconomic shocks in Zimbabwe, the extent to which shocks in Zimbabwe were synchronised with shocks affecting other regional countries and how effective were government policies in mitigating the impact of shocks in Zimbabwe. Zimbabwe is a fascinating case study given its unique exchange rate arrangements under the multiple currency system. The application of the micro-founded DSGE models in addition to the Structural Vector Autoregressive (SVAR) models is also a novel approach. The results of the DSGE model demonstrated that foreign output shocks and imported inflation were not important in accounting for developments in endogenous variables in Zimbabwe. In addition, the domestic output and inflation did not respond to a domestic monetary policy shock. However, the international commodity price was found to have some bearing on domestic output. Foreign interest rates had a positive effect on domestic interest rates. On the other hand, domestic variables did not respond to domestic interest rate movements. This effectively implies that whilst foreign interest rates influenced domestic interest rates, domestic interest rates did not influence real economic activity. In other words, the transmission mechanism was not from domestic monetary policy to real economic variables. The results of the SVAR model also confirmed the results obtained from the DSGE model. The results from the analysis of the synchronicity of shocks also provided very important information on the dynamics of external shocks and economic performance in Zimbabwe. These results pointed to the fact that although countries in the region experienced similar shocks, economic fluctuations were not synchronised implying that the shocks could be emanating from the domestic sources rather than external sources. The results from the analysis of the role of external shocks in explaining macroeconomic fluctuations in Zimbabwe revealed that domestic factors contribute more to macroeconomic fluctuations in Zimbabwe compared to external variables. The contribution of climatic factors to domestic output fluctuations was, however, found to have a limited or minimal impact on the economy. Regarding the monetary policy effectiveness, the study observed that there was a weak link between interest rates and output and inflation developments in Zimbabwe. The results also suggested a week link between interest rates and money supply in the economy. The results, however, suggested that international oil prices were very important in the domestic price formations, accounting for about 20 percent of the variation. The monetary policy conditional index on the other hand indicated that monetary conditions in the economy did not influence inflation and output developments, implying ineffectiveness of monetary policy. The results from the study demonstrated the fact that although external shocks do affect economic activity in Zimbabwe, domestic factors are more significant in influencing macroeconomic activity. The policy implication of the findings is that there is need to consider the domestic factors, which are more significant compared to the external factors. However, since monetary policy is not effective under the multiple currencies system, fiscal policy is important to deal with external shocks. This will also enable the economy to absorb the impact of external shocks into the economy. The policies should focus more on reducing the over-reliance on primary commodities for exports through diversification of the economy.
- Format
- xix, 232 leaves
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- Nelson Mandela University
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