Authors: E.m.K. Mambu
Addresses: University of Greenwich Business School, Maritime Greenwich Campus, Old Royal Naval College, Park Row, Greenwich, London SE10 9LS, UK
Abstract: During the 1990s, whenever inflation accelerated in the Congo (Dem. Rep.) the domestic currency was abandoned in favour of dollar holdings. The increased demand for dollars resulted in a higher relative price of the latter or greater depreciation of domestic currency, which is the essence of exchange rate overshooting. In demand terms, there was a greater preference for foreign currencies than for goods. Unlike the Dornbusch model, the 1990s exchange rate overshooting associated with dollarisation in Congo assumes no price rigidity. It suggests, instead, that both prices and the exchange rate did adjust speedily to changes in the money supply.
Keywords: hyperinflation; dollarisation; exchange rate overshooting; local currency; foreign currency; currency notes; bank deposits; broad money; velocity of circulation; Congo; inflation; money supply changes.
International Journal of Economic Policy in Emerging Economies, 2009 Vol.2 No.4, pp.415 - 425
Published online: 13 Jan 2010 *Full-text access for editors Access for subscribers Purchase this article Comment on this article