Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101868
Authors: 
Brixiova, Zuzana
Ncube, Mthuli
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Papers 8398
Abstract: 
Zimbabwe faces growth and external competitiveness challenges, as indicated by its low trend growth and investment, declining share in the world exports, high current account deficits, and external debt. The stock-flow approach to the equilibrium exchange rate reveals that the real exchange rate experienced periods of sizeable overvaluation, both prior to the 2008 economic collapse and under the current multicurrency regime. While overvaluation hampers GDP growth, as well as growth and employment in export sectors, we have not found that undervaluation would raise it. Replacing the multicurrency regime anchored in the US$ by the South African rand as the sole transaction currency would help reduce overvaluation and stimulate exports and growth. Under any currency regime, Zimbabwe needs to adhere to sound macroeconomic policies, avoid overspending on public wages, and create environment conducive for investment.
Subjects: 
real exchange rate misalignment
growth
employment
currency regime
Zimbabwe
JEL: 
F36
F41
C22
O11
Document Type: 
Working Paper

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