Money Demand and Seignorage Maximization before the End of the Zimbabwean Dollar

43 Pages Posted: 6 Feb 2019 Last revised: 15 Dec 2019

See all articles by Stephen Matteo Miller

Stephen Matteo Miller

George Mason University - Mercatus Center

Thandinkosi Ndhlela

Monash University

Date Written: February 5, 2019


Unlike most hyperinflations, during Zimbabwe’s recent hyperinflation, as in Revolutionary France, the currency ended before the regime. The empirical results here suggest that the Reserve Bank of Zimbabwe operated on the correct side of the inflation tax Laffer curve before abandoning the currency. Estimates of the seignorage-maximizing rate derive from a short-run structural vector autoregression framework using monthly parallel market exchange rate data computed from the ratio of prices from 1999 to 2008 for Old Mutual insurance company’s shares, which trade in London and Harare. Dynamic semi-elasticities generated from orthogonalized impulse response functions indicate that the monthly seignorage-maximizing rate equaled 108 to 118 percent, generally exceeding monthly inflation.

Keywords: Cagan’s Paradox, hyperinflation, money demand, seignorage maximization, structural vector autoregression

JEL Classification: E31, E41, E42, E58, E62, E65

Suggested Citation

Miller, Stephen Matteo and Ndhlela, Thandinkosi, Money Demand and Seignorage Maximization before the End of the Zimbabwean Dollar (February 5, 2019). Mercatus Research Paper. Available at SSRN: or

Stephen Matteo Miller (Contact Author)

George Mason University - Mercatus Center ( email )

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Arlington, VA 22201
United States

Thandinkosi Ndhlela

Monash University ( email )

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Wellington Road
Clayton, Victoria 3800

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