Browsing by Author "Abayo, Angela"

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    The impact of financial innovations on demand for money: a case of Tanzania, 1967-2004
    (University of Dar es Salaam, 2005) Abayo, Angela
    The financial sector institutional and regulatory framework has undergone a series of changes since economic reforms began in the mid-1980s. For this reason, this study explores empirically the impact of financial innovations on the demand for money in Tanzania since the liberalization of the financial sector in the m id 1980s. The shifts of the parameters over time have occurred•, causing instability in the money demand function. The study employs econometric analysis in which the error correction method (ECM) is applied . The variables included in the money demand function are: the bank credit to various sectors, the per capita bank branch, expected inflation rate, the treasury bill rate, the savings deposit rate and the gross domestic product/ income. Using Johansen Maximum Likelihood and error correction modelling procedure, the study finds unstable money demand function. In addition, a dummy variable was also included as one of the regresses in order to test the hypothesis that financial innovation leads to unstable demand for money function. Empirical evidence based on Chow stability tests show that financial innovation that took place after the reforms in the financial sector in the mid-1980s caused instability in the money demand function in Tanzania. This finding implies that, the financial sector liberalization induced instability in the money demand function. Due to the financial innovations, such instability can reduce the reliability the short-run and long run money demand functions therefore affecting the reliability the monetary policy actions.