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Analysing the Distributional Impacts of Stabilisation Policy with a CGE Model: Illustrations and Critique for Zimbabwe

Working papers

This paper looks at the use of a standard, static computable general equilibrium (CGE) model (IFPRI model) for analysing and comparing the distributional impacts of different macroeconomic stabilisation policies. The primary objective is to improve the external balance of an economy in crisis. The paper discusses how this can be achieved in the context of the particular model and identifies the limitations of the model. The country analysed is Zimbabwe, which is facing deep economic and political crisis and is in acute need of macroeconomic stabilisation. Real GDP is in a continuous decline and inflation in 2003 hit over 600%. Nearly all sectors of the economy have experienced a sharp downturn, agriculture in particular because of the land reform. The Zimbabwe dollar has been grossly overvalued, which has led to the emergence of a large parallel exchange market. Donor support and capital inflows have come to a halt and there is an acute shortage of foreign exchange.

Sonja Fagernas