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 post-conflict period. The results show that far from there being a fiscal peace dividend, post-conflict governments tend to face even more pressing needs after than during war. As a result, in the absence of post-conflict aid, inflation increases sharply, 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 achieves a monetary 'reconstruction' analogous to its more evident role in infrastructure.

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