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The World Bank Economic Review Advance Access originally published online on January 14, 2008
The World Bank Economic Review 2008 22(1):87-112; doi:10.1093/wber/lhm020
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© The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Postconflict Monetary Reconstruction

Christopher Adam, Paul Collier, and Victor A.B. Davies

Christopher Adam (corresponding author) is a research associate at the Centre for the Study of African Economies, Department of Economics, University of Oxford;
Paul Collier is the director of the Centre for the Study of African Economies; his email address is paul.collier{at}economics.ox.ac.uk
Victor A.B. Davies is a senior research economist at the African Development Bank and a research associate at the Centre for the Study of African Economies; his email address is v.davies{at}afdb.org

Correspondence: his email address is christopher.adam{at}economics.ox.ac.uk

JEL codes: H56, F35, O10

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.


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