Money demand and stabilisation in Zimbabwe

During the 1980s the potential instability of Zimbabwe's unsustainably high budget deficit was reduced by the smooth transfer of resources from the pr ivate to the public sector via the domestic financial system, which affecte d private demand for financial assets. Import, exchange and price controls operated to suppress private-sector demand. This led to the build-up of pri vate savings, which was on-lent to the government via liquid asset requirem ents and the crowding out of domestic deposits in the nonbank private secto r's portfolio by government securities. This article uses Johansen's proced ure for analysing cointegration to model the demand for real money balances in Zimbabwe, in order to determine the extent to which these constraints o n the domestic asset market suppressed the demand for money in Zimbabwe.