Fiscal Dominance and Inflation in the Democratic Republic of the Congo

Author/Editor:

Jean-Claude Nachega

Publication Date:

November 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the fiscal dominance hypothesis in the Democratic Republic of the Congo (DRC) during 1981-2003, using multivariate cointegration analysis and vector errorcorrection modeling. Empirical results point to strong and statistically significant long-run relationships between budget deficits and seigniorage, and between money creation and inflation. The long-run inflationary impact of budget deficits is robust to the inclusion of output growth or velocity in the inflation and monetary growth equations. The paper offers some policy recommendations for long-term price stability in the DRC.

Series:

Working Paper No. 2005/221

Subject:

Budget planning and preparation Currency issuance Government debt management Inflation Monetary base

English

Publication Date:

November 1, 2005

ISBN/ISSN:

9781451862409/1018-5941

Stock No:

WPIEA2005221

Pages:

44

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