n Journal of Strategic Studies : A Journal of the Southern Bureau of Strategic Studies Trust - A Minskyan analysis of Zimbabwe's deflationary episode

Volume 6, Issue 1
  • ISSN : 2076-6645
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The purpose of this study is to investigate Zimbabwe's deflationary episode in the context of a Minsky model of financial crisis. The global decline in inflation rates over the last decades has invoked fears and concerns about the threat of deflation, a decline in the general level of prices as measured by the consumer price index (CPI) ; retail prices index (RPI) or the GDP deflator, however short-lived. The Minsky model can be characterised in five different stages such as displacement, boom, overtrading, revulsion, and tranquillity. The findings were ambiguous that Zimbabwe's deflationary episode followed the Minsky model of financial crisis. However, it was clear that an asset bubble, soon after dollarization, based on high expectations of increased profitability enabled the banks to extend larger volumes of loans; asset prices/values were invalidated in the ensuing period when the anticipated profits failed to materialise triggering a debt deflation. Simultaneously, interest rates at commencement of the credit boom were counter cyclical as confirmed by the Taylor rule. In concluding the study identifies dollarization without the crucial structural reforms and without a robust public awareness campaign 2009 of the meaning and implications of dollarization created the scenario for deflation. Finally, the study recommend the implementation of fiscal, trade, financial, labour, and LOLR reforms to increase the efficiency of the economy.

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