A Granger-Causality and Cointegration Analysis of Consumption Effects on Zimbabwe’s Hyperinflation and GDP Growth

Abstract

The importance of understanding behavioral economics for consumers is immense nowadays. According to the Keynesian economic theory, consumption depend on GDPGR or national income growth (elasticity of income) and CPL (purchasing power). The study on Zimbambwe’s GDPMPC effects, particularly on inflation in general and the 796 million % hyperinflation in particular, seemed to attract many to learn the case. It sought to observe the interaction pattern of the country’s consumption using a co-integration and granger-causality analysis, which sought to answer the trends direction and stationarity of the economic indicators, granger-causality analysis, which couth to answer the research questions and hypotheses. They led to answer the trends direction and stationarity of the economic indicators, granger-causality relationship and the effects of GDPMPC as a model for long- range equilibrium. The analysis of the 39-year economic panel data demonstrated a significant time series co-integration of the GDPMPC effects, which had indicated a clear direction on the GDPGR and CPL, which triggered the hyperinflation with the following model: CEt- 1=1.000 GDPMPC (consumption) t-1 +0.554 GDPGR (national income) t-1 + 0.167 CPI (hyperinflation) t-1+ et.