Postconflict Monetary Reconstruction

During civil wars governments typically resort to inflation to raise revenue. A model of this phenomenon is presented, estimated, and applied to the choices and constraints faced during the postconflict period. The results show that far from there being a fiscal peace dividend, postconflict governme...

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Bibliographic Details
Published in:The World Bank economic review 2008-01, Vol.22 (1), p.87-112
Main Authors: Adam, Christopher, Collier, Paul, Davies, Victor A.B.
Format: Article
Language:English
Subjects:
A Symposium on Post-Conflict Transitions
asset substitution
assets
Bank reserves
capital flight
Civil war
Civil wars
Currency
Defense spending
discount rate
Economic development
Economic growth
Economic performance
Estimation
Exchange rates
Expenditures
F35
Foreign aid
GDP
Government
Government spending
Gross Domestic Product
H56
Income elasticity of demand
Inflation
Inflation rates
Monetary policy
Money demand
O10
Peacetime
Post-conflict reconstruction
Post-conflict societies
Postwar reconstruction
Private sector
Public infrastructure
rate of inflation
seigniorage
seigniorage revenue
War
World Bank
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Summary:During civil wars governments typically resort to inflation to raise revenue. A model of this phenomenon is presented, estimated, and applied to the choices and constraints faced during the postconflict period. The results show that far from there being a fiscal peace dividend, postconflict governments tend to face even more pressing needs after than during war. As a result, in the absence of postconflict aid, inflation increases sharply, frustrating a more general monetary recovery. Aid decisively transforms the path of monetary variables in the postconflict period, enabling the economy to regain peacetime characteristics. Postconflict aid thus achieves a monetary "reconstruction" analogous to its more evident role in infrastructure.
ISSN:0258-6770
1564-698X
1564-698X
DOI:10.1093/wber/lhm020