Browsing by Author "Nchemba, Mwigulu Lameck"

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    The impact of foreign aid on money supply: a case study of Tanzania 1966-2003
    (University of Dar es Salaam, 2006) Nchemba, Mwigulu Lameck
    Tanzania is among of developing countries, which has been highly depending on foreign aid as a source of her development finance. The country has benefited from both multilateral and bilateral inflows. This study therefore, examines the Impact of Foreign Aid on Money Supply in Tanzania from 1966 to 2003. The money supply function includes foreign aid, real GDP, deficit budget financing and deposit rate. The evidence from the Johansen Cointegration Test suggests two cointegrating equations at 5 percent. The Vector Error Correction method is supplied and the estimates suggest that, the first and second lags of ODA, DBF, and MS are found significant at 1 percent level of significant; DR is significant at first, second and third as where as RGDP is only significant at first lag. In addition, a dummy variable was also included as one of the explanatory variable to capture the economic changes brought about by the reform process. The general observations of the findings show that most important factors that determine money supply process are captured in the model. Given that foreign aid inflows affect significantly money supply in Tanzania, it justifies strong sterilization policy to mitigate the effects of the inflows and keep money supply on track.
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    Sterilization of foreign exchange inflows in Tanzania: extent and effectiveness
    (University of Dar es Salaam, 2017) Nchemba, Mwigulu Lameck
    Tanzania has received substantial foreign exchange inflows as a key instrument for growth, Development and poverty reduction initiatives over the past three decades. The inflows resulted in a build-up of foreign exchange reserves. The increase in volume of inflows if not accompanied with proper monetary authority intervention results into economic overheat. This has perhaps compelled the central bank to undertake policy interventions to overcome the likely side effects of excessive inflows. Most studies carried inside and outside Tanzania provide an explanatory reading of effects of foreign exchange inflows, how interventions affect the exchange rate and some few focused on empirical analysis of magnitude and effectiveness of interventions as well as the cost to the central bank. It is on this account that the broad objective of this study is to fill this gap. After undertaking all the necessary diagnostic statistical test of the data used for regression, Three-Stage Least Squares (3SLS) method was used to estimate the sterilization and offset coefficients. For robustness the 2SLS and GMM estimators have been used and OLS too for comparison purposes in which, the three estimators (3SLS, 2SLS and GMM) were statistically significant and differ only marginally, but they differ fairly substantially with OLS estimates. Results indicate that the central bank fully sterilized the effects of foreign exchange inflows and the operations went with costs to the central bank. Findings indicate that the value of the estimated offset coefficient is notably lower relative to the estimated sterilization coefficient. This indicates a relatively high degree of monetary policy independence in neutralizing foreign inflows. The findings have an important implication that, the monetary authority in Tanzania has to keep the practice of independence in formulating an independent monetary policy.