The effect of non-bank financial institutions on demand for money: a case study of Tanzania 1967-2002.
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Date
2004
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Publisher
University of Dar es Salaam
Abstract
This study investigated the effect of deposits mobilized by non-bank financial institutions (NBFIs) on the demand for money in Tanzania for the period 1967-2002. The study was motivated by the rapid emergence and growth of liabilities of NBFIs in the country. In the analysis, adjustment was made to the standard demand for money function by adding the deposits mobilized by NBFIs to the three definitions of money namely; narrow definition (Ml), broad definition (M2) and the expanded broad (M3) definition of money. The demand for money function was estimated by using the ordinary least square (OLS) method. The data used were annual time series for the period 1967-2002. The choice of OLS as the appropriate single equation estimation method was because it is simple to use and it has been widely used with good results. The model used in the analysis included six variables namely: income, interest rate, inflation rate, monetization (M2/GDP), real exchange rate, liabilities of NBFIs and a dummy variable to capture the effect of economic reforms in the country. The study established, among others that, the NBFIs liabilities are important in explaining the demand for money in Tanzania. The findings suggest that, any monetary policy aimed at stabilizing the economy should take into account the activities of NBFIs. Besides, since the liabilities of the NBFIs influence money demand in Tanzania, policies that would introduce new financial products will expand the NBFs savings and its importance in the economy. Moreover, the results of the study suggest that there is no significant impact of the economic reforms on the demand for money in Tanzania for the period under study. Since the participation of the NBFIs in the financial sector expands the market for financial instruments, broader rnacroeconomic policies are required to address rigidities in the money market and to improve the performance of the NBFIs.
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Keywords
Demand for money, Non-banking financial institutions, Tanzania
Citation
Kisanga, E. K. (2004). The effect of non-bank financial institutions on demand for money: a case study of Tanzania 1967-2002. Masters dissertation, University of Dar es Salaam. Available at (http://41.86.178.3/internetserver3.1.2/detail.aspx?parentpriref=)