Financial Economics

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Links between the informal and formal /semi - formal financial sectors in Malawi
(AERC, 1992-11-01) Chipeta C; M. L. C Mkandawire
Small and medium-scale enterprises in Nigeria: their characteristics, problems and sources of finance
(African Economic Research consortium, 1992-12-05) Ekpenyong, David B.; Nyong, M.O.
THE NIGERIAN BANKING SYSTEM IN THE CONTEXT OF POLICIES OF FINANCIAL REGULATION AND DEREGULATION
(AERC, 1992-12-28) ADEDOYIN SOYIBO; FEMI ADEKANYE
Scope, structure and policy implications of informal financial markets in Tanzania
(AERC, 1993-04-02) M. HYUHA; M. 0. NDANSHAU; J. P. KIPOKOLA
European economic integration and the Franc Zone: The future of the CFA franc after 1996
(AERC, 1993-07-02) Allechi M"bet; Amlan Madeleinen Niamkey
The determinants of fiscal deficit and fiscal adjustment in Cote D'IVoire
(AERC, 1993-07-27) Oussou, Kouassy; Bouabre, Bohourn
Inflationary trends and control in Ghana
(AERC, 1993-09) Sowa, Nii K; Kwakye, John
The informal and semi-formal financial sectors in Ethiopia: a study of the iqqub, iddir, and savings and credit co-operatives
(AERC, 1993-10) Aredo, Dejene
TRADE, PAYMENTS LIBERALIZATION AND ECONOMIC PERFORMANCE IN GHANA
(AERC, 1994-11) JEBUNI, C. D.; ODURO, A. D.; TUTU, K. A.
Not available
MONETARY HARMONIZATION IN SOUTHERN AFRICA
(AERC, 1994-11) Chipeta, C; Mkandawire, M. L. C
At its 1991 Summit held in Arusha, Tanzania, the authority of SADC decided that the organisation should embark on macroeconomic and sectoral policy planning and coordination. As pointed out by the organisation's Executive Secretary in January 1992, during the Annual Consultative meeting held in Maputo, Mozambique, macroeconomic policy planning and coordination will include the creation of a monetary union. All member states of SADC, except Botswana, are also members of the Preferential Trade Area of Eastern and Southern Africa (PTA). According to its Treaty, the aim of the PTA is to promote cooperation and development in all fields of economic activity, including monetary affairs. Monetary cooperation has been interpreted to include establishing a common monetary area with a greater measure of monetary stability in order to facilitate economic integration. To this end, the authority of the PTA decided in 1990 that the organisation should work towards the establishment of a single currency by the year 2000. Southern Africa already has one monetary harmonization scheme — the Common Currency Area covering South Africa, Lesotho, Namibia and Swaziland. Mozambique has openly expressed interest in joining this currency area. Other countries would like to see the rand become the common currency of Southern Africa.
EXCHANGE RATE DEPRECIATION, BUDGET DEFICIT AND INFLATION - THE NIGERIAN EXPERIENCE
(AERC, 1994-11) EGWAIKHIDE, FESTUS 0.; CHETE, LOUIS N.; FALOKUN, GABRIEL 0.
not available
INDICES OF EFFECTIVE EXCHANGE RATES: A COMPARATIVE STUDY OF ETHIOPIA, KENYA AND THE SUDAN
(AERC, 1994-11) KIDANE, ASMEROM
The paper considers the various indices of effective exchange rate that are applied in many countries to measure the overvaluation or undervaluation of a particular currency compared to the currency of major trading countries. First the conceptual issues of the nominal effective exchange rate (NEER) is considered. In general there are three types of nominal effective exchange rates namely the export weighted, import weighted and trade weighted rates. Other indices may also be developed on the basis of the three indices. The major drawback with these rates is that they do not isolate the effect of overvaluation from possible inflationary differentials between reporting countries and major trading partners. In order to isolate the pure exchange rate effect, the nominal effective exchange rate should be deflated by the ratio of the inflation rate of a reporting country to that of a partner country. This would in turn give us the Real Effective Exchange Rate (REER). There are two problems associated with the conversion of NEER to REER. First, there is an issue of what type of price index to use. There are several indices including the Consumer Price Index (CPI), the wholesale price index (WPI), as well as other related indices. Second, even if a particular index is chosen, that index may not be measured in a similar manner between the two countries. If the Real Effective Exchange Rate (REER) is measured with minimal error then such an index may be a measure of changes in the price of tradables compared to non-tradables. In other words, the REER is akin to the Real Exchange Rate (RER).
SHORT-RUN MACROECONOMIC EFFECTS OF BANK LENDING RATES IN NIGERIA, 1987-91: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS
(AERC, 1995-03) AJAKAIYE, D. OLU
In this study, a computable general equilibrium (CGE) model was developed for Nigeria and applied in simulating the short-run macroeconomic effects of the rising bank lending rates experienced during the period of financial liberalization, i.e., 1987-1991, incorporating the confounding effects of the exchange rate depreciation that also occurred during this period. In order to assess the severity of the effects of the rising bank lending rates, the model was simulated while controlling for the exchange rate effects. Analysis of the results shows that the rising bank lending rate along with the exchange rate depreciation had deleterious effects on inflation, output, income, consumer demand and government fiscal posture. It was also found that while the rising bank lending rate without the confounding effects of exchange rate depreciation had deleterious effects on these macroeconomic aggregates, the effects were less severe. Thus, the exchange rate depreciation only aggravated the adverse effects of the bank lending rate during this period. These findings provide a reasonable basis for suggesting that the monetary authorities should fix the spread between the maximum lending rate and the interest rate on savings deposits at the 3.5% rate that prevailed at the beginning of the financial sector liberalization in 1987. The minimum rediscount rate (MRR) should also be reduced to its 1987 level of 12.8% in order to induce the banks to lower interest rates generally. Moreover, the role of banks in foreign exchange management should be limited to that of intermediation between the Central Bank of Nigeria (CBN) and the end-users. The end-users would then bid directly in the foreign exchange market, a situation that should enhance the potency of appropriate monetary and fiscal policies as instruments for stabilizing the exchange rate of the naira.
THE ROLE OF EXCHANGE RATE AND MONETARY POLICY IN THE MONETARY APPROACH TO THE BALANCE OF PAYMENTS: EVIDENCE FROM MALAWI
(AERC, 1995-10) SILUMBU, EXLEY B. D.
This study tests the reserve flow equation (RFE) of the monetary approach to the balance of payments using Malawi as a case study. Within the RFE the study investigates the roles of relative prices, defined as the ratio of the product of the nominal exchange rate (NER) and the foreign currency prices to the price of nontraded goods, and domestic credit control. The nontradables price is found to be negatively related to the balance of payments implying the dominance of relative price effects over money demand effects. The NER is found to exert perverse effects in the initial year prior to positively influencing the balance of payments in the following year. This means that a devaluation first leads to a loss of reserves before they can rebuilt. This is also the case with the real exchange rate (RER) on a quarterly basis although it is well-behaved on an annual basis. Domestic credit is revealed to have the expected negative impact followed by a positive coefficient which suggests the effective use of selective credit policy stance which favoured the export-oriented plantation sector. The potential for sterilization operations is rejected on an annual basis but weakly supported on a quarterly basis. Although causality is observed to be from credit to reservesand not from reserves to credit on an annual basis, it is found to be in both directions on a quarterly basis.
INSTITUTIONAL REFORMS AND THE MANAGEMENT OF EXCHANGE RATE POLICY IN NIGERIA
(AERC, 1995-10) ODUBOGUN, KASSEY
A market determined allocation of foreign exchange (FOREX) and the exchange rate is considered necessary to an improvement in the competitiveness of the Nigerian economy both internally and in its trade and financial transactions with the rest of the world. However, the realisation of the advantages of the market by an economy depends on the functional character of its markets and its public institutions. This study has therefore analysed from an institutional perspective, the evidence on Nigeria's FOREX management and exchange rate policy from 1960 to 1990. The outcome of each policy regime was compared in terms of (a) the trend in exchange rate (b) degree of exchange rate premium and (c) structure of FOREX allocation. Evidence suggests that in spite of the reform of 1986, the naira exchange rate is still not competitively determined and the allocation of FOREX remains inconsistent with the requirements for the long-term development of the Nigerian economy. Evidence also indicate that the post-reform exchange rate policy has been adversely affected by government's expansive fiscal and monetary policy. The major conclusion of the study is that given government's macroeconomic policy and the character of the markets within which FOREX was traded and the linkages between them, the naira exchange rate has little chance of covergence and as a result, the possibilities for distortions in the allocation of FOREX remain very high.
CAPITAL FLIGHT AND EXTERNAL DEBT IN NIGERIA
(AERC, 1995-10) AJAYI, S. IBI
Abstract not available
PROFILES AND DETERMINANTS OF NIGERIA'S BALANCE OF PAYMENTS: THE CURRENT ACCOUNT COMPONENT, 1950-88
(AERC, 1995-11) UMO, JOE U.; FAKIYESI, TAYO
Not available
Policy consistency and inflation in Ghana
(AERC, 1996-03) SOWA, Nil K.
Inflation appears to be the macro-problem in Ghana for which no antidote has been found under the economic recovery programme. It is possible that either a wrong diagnosis has been made of the problem, or that certain factors within the economy are preventing inflation from staying within target levels. Using an error-correction model (ECM), the paper estimates an inflation equation for Ghana. The convenience of this model is in the fact that all the data series exhibit an autoregressive scheme of order one: that is they are 1(1) series. In such an instance the Granger-Engle Theorem shows that the ECM provides the most efficient model. Further, the ECM unveils some of the short-run dynamics which are missing in other estimation techniques. The results of the econometric regression showed that inflation in Ghana, in either the long run or the short run, is influenced more by output volatility than by monetary factors. An examination is made of the consistency of fiscal deficits. The hypothesis is that an unsustainable fiscal policy would make government miss some macroeconomic targets. It is shown that in 1985 and 1989, fiscal policy was consistent. Inflation was well within target in 1985. For 1986-1988, the government did not maintain consistent fiscal deficits, and inflation in those years was well above targets. It is recommended that to control inflation in Ghana, more attention should be paid to supply factors. Further, government should pursue consistent fiscal policies.
The effects of exchange rate policy on Cameroon’s agricultural competitiveness
(aerc, 1996-03) AMIN, ALOYSIUS AJAB
The paper analyses the effects of trade and exchange rate policies on Cameroon's agriculture. Theoretical models and formulas are developed for empirical analysis. The calculated relative prices and indexes estimates of the degree of over-valuation of the real exchange rate and regression analysis including elasticity estimates show that these policies have been the major cause of the deterioration of Cameroon's agricultural competitiveness. The paper demonstrates the link between real exchange rates and agricultural performance. Besides poor price incentives due to government's intervention — and failure to intervene when appropriate the lack of non-price incentives is found to hinder the development of the agricultural sector. The paper concludes by recommending the removal of these constraints, and intervention through devaluation and the maintenance of a realistic exchange rate, export tax elimination, reduction of import taxes and increase in public expenditure in the agricultural sector. It also suggests alternative ways of raising government revenue.
FOREIGN EXCHANGE BUREAUS IN THE ECONOMY OF GHANA
(AERC, 1996-03) OSEI, KOFI A.
From 1983, Ghana embarked on an economic recovery programme (ERP), an important feature which was trade and foreign exchange liberalization. This called for a legalization of the black market into foreign exchange (forex) bureaus. This paper looks at the structure of this market, including the major players, the level of activity and availability of currency on the market. The paper also looks at the efficiency of the market. The intention here is to ascertain whether information is widely and cheaply available to market participants. Lastly, the paper looks at the tax generation capacity of the bureau after the legalization of the black market. The main findings are that the market pivots around traders, and that small-scale users of foreign currency benefit enormously from this market. Since a higher percentage of the traders operate within the sub-region, intra-West African trade is substantially enhanced. The paper also found that the market is generally inefficient, evidenced by the number of arbitrage opportunities that exist. However, the benefits to Ghana from the introduction of the forex bureaus include an increased availability of foreign currency, tax revenue and employment. Forex bureau taxes bring the government more than 1% of company taxes, plus a license renewal fee of US$1 ,000 per bureau per year. The bureaus have also removed the inconveniences which small-scale foreign currency purchasers experienced in the previous exchange control regime. The most important development has been that the forex bureaus have obviously increased the overall level of economic activity in the country.

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