STABILITY OF MONEY DEMAND IN SIERRA LEONE USING AUTOREGRESSIVE DISTRIBUTED LAG (ARDL) APPROACH 1980 – 2018
Abstract
This work seeks to investigate whether money demand is stable in Sierra Leone. The study uses annual data for the period 1980 to 2018. A standard money demand is defined and estimated using the Autoregressive Distributed Lag (ARDL) approach. This technique permits error correction modeling to examine the short and long-run relationship between money demand and its determinants. The determinants of money demand (MD) are Real Gross Domestic Product GDP(Y) Real Exchange Rate (RER), Real Interest rate (RIR), GDP Deflator used as a proxy for inflation rate were empirically examined to determine their relative statistical significance as they affect money demand. In advance of adopting the ARDL Approach, the time series properties of the variables in the model were examined using the ADF and PP tests. All variable was found to be I(1) - stationary at the first difference, therefore the use of ADRL Approach is suitable and ideal. The model used in this study has passed all of the diagnostic tests – specification, serial correlation, heteroscedasticity, and structural stability. Hence the estimated model cannot be spurious. Therefore, these results are not misleading, rather they are reliable. The test of stability was done using CUSUM and CUSUMSQ plots, and both suggest that there exists a stable relationship between real broad money demand in Sierra Leone and its determinants.
JEL: E61, E62, P35
Keywords
Full Text:
PDFReferences
Akinlo, A. E. (2006). The stability of money demand in Nigeria: An autoregressive distributed LAG approach. Journal of Policy Modeling, 28(4), 445-452.
Bangura, M., Kargbo, I., & Pessima, S. (2022). Financial Innovation in Sierra Leone: Is the Money Demand Still Stable? Modern Economy, 13(3), 284-299.
Bathalomew, D., & Kargbo, S. M. (2009). Exchange rates and monetary dynamics in Sierra Leone: Evidence from a modified money demand function. Journal of Monetary and Economic Integration, 9(2), 114-137.
Baumol, W. J. (1952). The transactions demand for cash: An inventory theoretic approach. The Quarterly Journal of Economics, 66(4), 545-556.
Chin-Hong, P., & Lee-Chea, H. (2010). Financial liberalization, weighted monetary aggregates and money demand in Indonesia.
Duramany-Lakkoh, E. (2021). Measuring Financial Performance for the Sustainability of Microfinance Institutions in Sierra Leone before the Ebola Outbreak. Journal of Financial Risk Management, 10, 274-297. doi: 10.4236/jfrm.2021.103016.
Duramany-Lakkoh, E. K. (2020). The Effect of Fiscal Policy on Financial Sector Development in Sierra Leone: A Time Series Approach. International Journal of Development and Economic Sustainability, 8(4), 1-23.
Duramany-Lakkoh, E., Jalloh, M. and Jalloh, A. (2021) Foreign Direct Investment and Manufacturing Sector in Sierra Leone: A Vector Auto-Regression Analysis Approach. Journal of Mathematical Finance, 11, 620-650. doi: 10.4236/jmf.2021.114034.
Hassan, S., Ali, U., & Dawood, M. (2016). Measuring money demand function in Pakistan. Holmes, J. M., & Smyth, D. J. (1972). The specification of the demand for money and the tax multiplier. Journal of Political Economy, 80(1), 179-185.
Jhingan, M. L. (2022). The economics of development and planning. Vrinda Publications (P) Ltd.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
Kallon, K. M. (2009). The demand for money in Sierra Leone revisited. Journal of African Development, 11, 1, 42-57.
Mankiw, N. G. (1997). 19 The reincarnation of Keynesian economics. A Macroeconomics Reader, 445.
Mankiw, N. G., & Summers, L. H. (1988). Money Demand and the Effects of Fiscal Policies: Reply. Journal of Money, Credit and Banking, 20(4), 715-717.
Mansaray, M., & Swaray, S. (2012). Financial liberalization, monetary policy and money demand in Sierra Leone. Journal of Monetary and Economic Integration, 12(2), 62-90.
Nakorji, M., & Asuzu, O. C. (2019). Money Demand in the Conduct of Monetary Policy in Nigeria. Economic and Financial Review, 57(1), 1-21.
Omotor, D. G., & Omotor, P. E. (2011). Structural breaks, demand for money and monetary policy in Nigeria. Ekonomski pregled, 62(9-10), 559-582.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1997). Pooled estimation of long-run relationships in dynamic heterogeneous panels. Retrieved from https://www.econ.cam.ac.uk/people-files/emeritus/mhp1/jasaold.pdf
Pesaran, M. H., Y. Shin, and R. J. Smith (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Economics 16:289-326.
Rutayisire, M. J. (2010). Economic liberalization, monetary policy and money demand in Rwanda: 1980–2005. AERC.
Samuel, A., and Duramany-Lakkoh, E. K. (2023). A Scholarly Consideration on The Theories and Literature of Tax Reforms in Sierra Leone. European Journal of Economic and Financial Research, Vol. 7(3), 69-104. DOI: 10.46827/ejefr. v7i3.1531
Siklos, P. L. (1995). Long–run and short–run money demand: which price deflator to use? Some evidence using New Zealand data. Applied Economics Letters, 2(6), 199-202.
Sriram, S. S. (2000). A survey of recent empirical money demand studies. IMF Staff papers, 47(3), 334-365.
Tobin, J. (1956). The interest-elasticity of transactions demand for cash. The review of Economics and Statistics, 38(3), 241-247.
Tuluzawu, P. T. (2016). Demand for money in Zimbabwe: 2009–2013 (Doctoral dissertation, University of Zimbabwe).
WAMA. (2012). Demand for money in ECOWAS countries: West African Monetary Agency working paper.
Yoshida, T., & Rasche, R. H. (1990). The M2 demand in Japan: shifted and unstable? Monetary and Economic Studies, 8(2), 9-30.
DOI: http://dx.doi.org/10.46827/ejefr.v8i1.1622
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Michael Fallah Bockarie, Ezekiel K. Duramany-Lakkoh, Hassan Jalloh, Ernest Udeh
This work is licensed under a Creative Commons Attribution 4.0 International License.
The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.
Copyright © 2016 - 2023. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing Group. All rights reserved.
This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.
