Post-Conflict Monetary Reconstruction
Written by Christopher Adam, Paul Collier and Victor Davies
During civil war governments typically resort to inflation to raise revenue. This paper models and quantifies this phenomenon and then applies it to the choices and constraints faced in the post-conflict period. The authors show that far from there being a fiscal peace dividend, post-conflict governments tend to face even more pressing needs than during war. In consequence, in the absence of post-conflict aid, inflation sharply increases, frustrating a more general monetary recovery. Aid decisively transforms the path of monetary variables in the post-conflict period, enabling the economy to regain peacetime characteristics. Post-conflict aid thus accomplishes a monetary ‘reconstruction’ analogous to its more evident role in infrastructure.
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