Stability of the Money Demand Function Revisited: Evidence from Sierra Leone

Saidu Swaray

doi:doi:10.11648/j.ijefm.20221003.15

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Stability of the Money Demand Function Revisited: Evidence from Sierra Leone

Saidu Swaray

Published in International Journal of Economics, Finance and Management Sciences (Volume 10, Issue 3)

Received: 19 May 2022 Accepted: 6 June 2022 Published: 14 June 2022

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Abstract

The study empirically examined the stability of the money demand function that justifies the adoption of the monetary aggregate targeting framework by the Bank of Sierra Leone using quarterly data spanning from 2002 to 2018. To account for structural breaks emanating from policy shocks and regime shifts in the data such as the civil unrest from 1991-2002, the Ebola Virus Disease (EVD) outbreak from 2014-2016, the mudslide in 2017 and other global shocks, the study conducted unit root tests with structural breaks and regime shift. The long-run estimates of the ARDL model confirm the stability of the money demand functions. In particular, the results show high income elasticity of money demand when narrow money was used as the dependent variable, implying a cash based economy that requires serious consideration in the conduct of monetary policy. Given that the economy is still rudimentary with high propensity of underground economic activities, it is palpable that monetary policy will continue to be challenged especially when the central bank continues to struggle in mopping up excess liquidity in the banking system as a result of the enormous shadow activities in the country. Hence, any policy that is geared towards targeting the narrower definition rather than broader definition of money could help mitigate the challenges associated with withdrawing excess liquidity from the banking system and thus enhances the conduct of an effective monetary policy.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 10, Issue 3)
DOI	10.11648/j.ijefm.20221003.15
Page(s)	122-133
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Money Demand, Monetary Policy, Narrow Money, Broad Money, ARDL, CUSUM, CUSUMSQ

References

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APA Style

Saidu Swaray. (2022). Stability of the Money Demand Function Revisited: Evidence from Sierra Leone. International Journal of Economics, Finance and Management Sciences, 10(3), 122-133. https://doi.org/10.11648/j.ijefm.20221003.15

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ACS Style

Saidu Swaray. Stability of the Money Demand Function Revisited: Evidence from Sierra Leone. Int. J. Econ. Finance Manag. Sci. 2022, 10(3), 122-133. doi: 10.11648/j.ijefm.20221003.15

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AMA Style

Saidu Swaray. Stability of the Money Demand Function Revisited: Evidence from Sierra Leone. Int J Econ Finance Manag Sci. 2022;10(3):122-133. doi: 10.11648/j.ijefm.20221003.15

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@article{10.11648/j.ijefm.20221003.15,
  author = {Saidu Swaray},
  title = {Stability of the Money Demand Function Revisited: Evidence from Sierra Leone},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {10},
  number = {3},
  pages = {122-133},
  doi = {10.11648/j.ijefm.20221003.15},
  url = {https://doi.org/10.11648/j.ijefm.20221003.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20221003.15},
  abstract = {The study empirically examined the stability of the money demand function that justifies the adoption of the monetary aggregate targeting framework by the Bank of Sierra Leone using quarterly data spanning from 2002 to 2018. To account for structural breaks emanating from policy shocks and regime shifts in the data such as the civil unrest from 1991-2002, the Ebola Virus Disease (EVD) outbreak from 2014-2016, the mudslide in 2017 and other global shocks, the study conducted unit root tests with structural breaks and regime shift. The long-run estimates of the ARDL model confirm the stability of the money demand functions. In particular, the results show high income elasticity of money demand when narrow money was used as the dependent variable, implying a cash based economy that requires serious consideration in the conduct of monetary policy. Given that the economy is still rudimentary with high propensity of underground economic activities, it is palpable that monetary policy will continue to be challenged especially when the central bank continues to struggle in mopping up excess liquidity in the banking system as a result of the enormous shadow activities in the country. Hence, any policy that is geared towards targeting the narrower definition rather than broader definition of money could help mitigate the challenges associated with withdrawing excess liquidity from the banking system and thus enhances the conduct of an effective monetary policy.},
 year = {2022}
}

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TY  - JOUR
T1  - Stability of the Money Demand Function Revisited: Evidence from Sierra Leone
AU  - Saidu Swaray
Y1  - 2022/06/14
PY  - 2022
N1  - https://doi.org/10.11648/j.ijefm.20221003.15
DO  - 10.11648/j.ijefm.20221003.15
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 122
EP  - 133
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20221003.15
AB  - The study empirically examined the stability of the money demand function that justifies the adoption of the monetary aggregate targeting framework by the Bank of Sierra Leone using quarterly data spanning from 2002 to 2018. To account for structural breaks emanating from policy shocks and regime shifts in the data such as the civil unrest from 1991-2002, the Ebola Virus Disease (EVD) outbreak from 2014-2016, the mudslide in 2017 and other global shocks, the study conducted unit root tests with structural breaks and regime shift. The long-run estimates of the ARDL model confirm the stability of the money demand functions. In particular, the results show high income elasticity of money demand when narrow money was used as the dependent variable, implying a cash based economy that requires serious consideration in the conduct of monetary policy. Given that the economy is still rudimentary with high propensity of underground economic activities, it is palpable that monetary policy will continue to be challenged especially when the central bank continues to struggle in mopping up excess liquidity in the banking system as a result of the enormous shadow activities in the country. Hence, any policy that is geared towards targeting the narrower definition rather than broader definition of money could help mitigate the challenges associated with withdrawing excess liquidity from the banking system and thus enhances the conduct of an effective monetary policy.
VL  - 10
IS  - 3
ER  -

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Author Information

Saidu Swaray

Research & Statistics Department, Bank of Sierra Leone, Freetown, Sierra Leone

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Plain Text BibTeX RIS

APA Style

Saidu Swaray. (2022). Stability of the Money Demand Function Revisited: Evidence from Sierra Leone. International Journal of Economics, Finance and Management Sciences, 10(3), 122-133. https://doi.org/10.11648/j.ijefm.20221003.15

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ACS Style

Saidu Swaray. Stability of the Money Demand Function Revisited: Evidence from Sierra Leone. Int. J. Econ. Finance Manag. Sci. 2022, 10(3), 122-133. doi: 10.11648/j.ijefm.20221003.15

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AMA Style

Saidu Swaray. Stability of the Money Demand Function Revisited: Evidence from Sierra Leone. Int J Econ Finance Manag Sci. 2022;10(3):122-133. doi: 10.11648/j.ijefm.20221003.15

Copy | Download

@article{10.11648/j.ijefm.20221003.15,
  author = {Saidu Swaray},
  title = {Stability of the Money Demand Function Revisited: Evidence from Sierra Leone},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {10},
  number = {3},
  pages = {122-133},
  doi = {10.11648/j.ijefm.20221003.15},
  url = {https://doi.org/10.11648/j.ijefm.20221003.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20221003.15},
  abstract = {The study empirically examined the stability of the money demand function that justifies the adoption of the monetary aggregate targeting framework by the Bank of Sierra Leone using quarterly data spanning from 2002 to 2018. To account for structural breaks emanating from policy shocks and regime shifts in the data such as the civil unrest from 1991-2002, the Ebola Virus Disease (EVD) outbreak from 2014-2016, the mudslide in 2017 and other global shocks, the study conducted unit root tests with structural breaks and regime shift. The long-run estimates of the ARDL model confirm the stability of the money demand functions. In particular, the results show high income elasticity of money demand when narrow money was used as the dependent variable, implying a cash based economy that requires serious consideration in the conduct of monetary policy. Given that the economy is still rudimentary with high propensity of underground economic activities, it is palpable that monetary policy will continue to be challenged especially when the central bank continues to struggle in mopping up excess liquidity in the banking system as a result of the enormous shadow activities in the country. Hence, any policy that is geared towards targeting the narrower definition rather than broader definition of money could help mitigate the challenges associated with withdrawing excess liquidity from the banking system and thus enhances the conduct of an effective monetary policy.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - Stability of the Money Demand Function Revisited: Evidence from Sierra Leone
AU  - Saidu Swaray
Y1  - 2022/06/14
PY  - 2022
N1  - https://doi.org/10.11648/j.ijefm.20221003.15
DO  - 10.11648/j.ijefm.20221003.15
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 122
EP  - 133
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20221003.15
AB  - The study empirically examined the stability of the money demand function that justifies the adoption of the monetary aggregate targeting framework by the Bank of Sierra Leone using quarterly data spanning from 2002 to 2018. To account for structural breaks emanating from policy shocks and regime shifts in the data such as the civil unrest from 1991-2002, the Ebola Virus Disease (EVD) outbreak from 2014-2016, the mudslide in 2017 and other global shocks, the study conducted unit root tests with structural breaks and regime shift. The long-run estimates of the ARDL model confirm the stability of the money demand functions. In particular, the results show high income elasticity of money demand when narrow money was used as the dependent variable, implying a cash based economy that requires serious consideration in the conduct of monetary policy. Given that the economy is still rudimentary with high propensity of underground economic activities, it is palpable that monetary policy will continue to be challenged especially when the central bank continues to struggle in mopping up excess liquidity in the banking system as a result of the enormous shadow activities in the country. Hence, any policy that is geared towards targeting the narrower definition rather than broader definition of money could help mitigate the challenges associated with withdrawing excess liquidity from the banking system and thus enhances the conduct of an effective monetary policy.
VL  - 10
IS  - 3
ER  -

Copy | Download