Modeling the long-run relationship between inflation and economic growth in Zimbabwe: a bi-variate cointegration (Engle-Granger Two-Step) approach

The debate on the nexus between economic growth and inflation is generally inconclusive and yet inevitably interesting. This study makes a contribution to the existing debate by empirically investigating the relationship between inflation and economic growth in the context of Zimbabwe. Using time series data spanning from 1960 up to 2017, the study employs the Engle – Granger Two Step modeling technique in order to analyze the relationship between inflation and economic growth in Zimbabwe. Our findings indicate that there is a negative and statistically significant relationship between inflation and economic growth both in the short – run and long – run. The speed of adjustment to equilibrium is approximately 62% annually when the variables wander away from their equilibrium values. Amongst other policy prescriptions, the study recommends inflation targeting policy in order to stimulate growth while maintaining price stability in Zimbabwe.