Demand for money and the conduct of monetary policy in East African countries

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Date
2014
Journal Title
Journal ISSN
Volume Title
Publisher
University of Dar es Salaam
Abstract
This study applied the bounds testing approach and four error-correction-based panel cointegration procedures to examine the stability of demand for money function in the East African countries (namely, Tanzania, Kenya, Uganda, Rwanda and Burundi) using quarterly data on broad money supply, income, interest rates and exchange rate for the period from 1995 to 2012. Given that during most of the period, money supply growth in the five East African countries was above the targets when inflation was either below or above the reference target, it was important to ascertain whether the money supply growth-inflation nexus reflected instability of demand for money function or was due to errors of the central banks of these countries in designing and implementing monetary policy. In addition, whereas the five countries are focused on the agenda to form a monetary union under the East African Community (EAC), the selecting of the appropriate monetary policy framework for the envisaged monetary union based on the empirical money demand analysis had not been given attention. The application of the bound testing approach to the data points to the existence of a stable money demand functions in Rwanda and Burundi; but unstable in Tanzania, Kenya, and Uganda. The findings from panel cointegration testing revealed that the money demand function for the five East African countries was unstable. Therefore, the study recommends that an alternative monetary policy framework, such as inflation targeting, need to be considered in Tanzania, Kenya and Uganda; and for the proposed monetary union.
Description
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG226.5.T34M5)
Keywords
Demand for money, Tanzania
Citation
Missango, S. (2014) Demand for money and the conduct of monetary policy in East African countries, Doctoral dissertation, University of Dar es Salaam. Dar es Salaam.
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