Monetary Economics

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ANALYSING THE EFFECTS OF INTEREST RATE AND RESERVE REQUIREMENT RATIO ON BANK CREDIT RISK IN NAMIBIA
(UNVERSITY OF NAMIBIA, 2020-09-28) ANDREAS, AILI
The study assessed the effect of monetary policy instruments (interest rates and reserve requirements) on banking institutions risk, measured in terms of non-performing loans. The study used quarterly data from Bank of Namibia from 2001Q1 to 2017Q3. The study employed the Autoregressive Distributive Lag (ARDL) lag model to determine the effects. Since the reserve requirements is seldom used in Namibia and ever kept at one percent of the bank’s total liabilities to the public, it was considered dormant. Therefore, shocking the reserves requirements up-or down-wards is not plausible in the Namibian economy. The variables considered are non-performing loans (NPL), as a dependent variable and interest rates (I), banks tier I capital (CA), banks’ total assets (TA), gross domestic product (GDP), and private credit extension (CR); as the explanatory variables. The results indicate that there is a short run negative effect between interest rates and bank risk, which implies that the low rate would increase the bank’s non-performing loans. The negative relationship indicates that low inflation or price stability does not guarantee financial stability in the economy. The Granger causality results indicate non-causality between interest rates and bank risk, but interest rates Granger cause economic growth and private sector credit that have a direct effect to bank risks.
COMPETITION-STABILITY NEXUS IN THE BANKING SECTOR OF ZIMBABWE (2009-2016)
(UNIVERSITY OF ZIMBABWE, 2020-09-30) SAKAROMBE, UPENYU
This study explored the relationship between competition and stability in the banking sector of Zimbabwe. The aims were to investigate the relationship between competition and stability in the banking sector of Zimbabwe and to establish the determinants of bank stability in Zimbabwe. This was done using the System Generalised Method of Moments (GMM) because it can solve the endogeneity problem between the measure of stability and the measure of competition. The GMM uses the lags of the dependent variables as instruments in the equation thereby managing the endogeneity problem. Panel data of 17 banking institutions from 2009 to 2016 were analysed using Stata 13. The results suggest that competition leads to stability instead of the fragility. This implies that competition enhances the stability of the banking system in Zimbabwe. Previous stability level contributes positively to current stability. The results also suggest that stability in the banking sector can also be enhanced through increase in loan disbursement and technical efficiency. However, increase in loans in relation to deposits reduces stability by increasing liquidity risks. The study recommends financial liberalisation through facilitating existence of a contestable market, that is, a market with zero entry and exit costs, where there are no barriers to entry and exit such as sunk costs. The regulatory authority should design proper ease of entry and exit policies for insolvent banks and reduce the too-important-to-fail subsidies. Enough credit information should be enabled to flow easily and fast. The government should also enable the increment of loan customer base by giving property rights to farm owners; respecting and protecting property rights so that they can be recognised by banks as credible collateral security. This study also recommends the maintenance of the loans to deposits ratio at optimum levels in order to control liquidity problems.
DETERMINANTS OF NON-PERFORMING LOANS IN THE MALAWI BANKING SECTOR
(UNIVERSITY OF MALAWI, 2020-09-23) PHIRI, SANGWANI M.
Default risk as evidenced by the level of Non-Performing loans (NPLs) in Malawi commercial banks has been increasing. NPLs which describe the Asset Quality of the banks is a measure of bank performance therefore it has an overall impact on the financial stability of the banks. NPLs result into funds being locked up in the unproductive sectors of the economy hence impeding economic growth and impairing economic efficiency. This study’s main objective was to determine the causes of NPLs in the commercial banks of Malawi. The study used panel data from seven banks from the year 2005 to 2014 in Malawi to analyze the bank-specific, industry-specific and macroeconomic determinants of NPLs using a Generalized Methods of Moments (GMM)/Dynamic Panel model. The model employed the Arellano-Bond (1991) onestep estimation technique which provides unbiased estimators when compared to a pooled regression model. The results obtained found that all bank-specific variables (bank size, loans to total assets ratio, ownership and growth rate of loans) were statistically significant. The variable bank and loans to assets ratio had positive significance. While ownership and growth rate of loans had negative impact. The industry-specific variable lending rate was found to have a negative impact. Among the only macro-economic variables (inflation, real exchange rate and growth rate of GDP), only the growth rate of GDP was found to be statistically significant. While inflation was found to be statistically significant only after taking its one period lag.
THE EFFECT OF FINANCIAL DEVELOPMENT AND MONETARY POLICY ON ECONOMIC GROWTH IN GHANA
(University of Cape Coast, 2018-11-12) SENA, PRINCE MIKE
The link between financial development and monetary policy has received considerable attention in many African Countries such as Ghana. This, notwithstanding, empirical evidence on the link have been mixed. The study, therefore, applied the Autoregressive Distributed Lag (ARDL) approach to investigating whether financial development influences monetary policy effectiveness on economic growth in Ghana for the period 1980 to 2016. The results revealed that monetary policy’s impacts on economic growth via financial development is positive and statistically significant suggesting that financial development strengthens the effects of monetary policy on economic growth in Ghana. Further, financial development, monetary policy, foreign direct investment, remittances, capital and labour supply exerted positive and statistically significant impact on economic growth both in the short-run and the long-run. Signifying that these variables are critical in enhancing sustained economic growth and development in Ghana. However, inflation proved to be detrimental to economic growth both in the long-run and short-run. The conduct of the Granger causality test also revealed a unidirectional causality running from economic growth to financial development. It is therefore recommended that Bank of Ghana should strengthen monetary policy transmission via deliberate efforts to deepen financial sector development and improve the competitiveness of financial markets. Bank of Ghana should also build strong and resilient institutional frameworks to foster the development of financial markets so as to deepen the influence of monetary policy on market interest rates in the financial sector.
THE EFFECT OF FINANCIAL INNOVATION ON MONEY DEMAND IN UGANDA: AN EXAMINATION OF NEW PAYMENT TECHNOLOGIES ON DEMAND FOR NARROW MONEY
(Makerere University, 2014-03-06) NAKAMYA, MIRIA
Since the liberalization of Uganda’s financial sector in the early 1990s, both foreign and local investors have been attracted to the sector. Competition and development; particularly technological development resulted in the introduction of new payment technologies such as ATM cards, Electronic Funds Transfers (EFTs), Real Time Gross Settlement (RTGS), Internet Banking, use of visa and debit cards and now mobile money transfers. These would ordinarily lead to either an increase of decrease in demand for money. Their effect on demand for money in Uganda has not been studied. In this regard, it is imperative to investigate the effect that these payment technologies have on demand for narrow money. In particular, this study assesses the effect of the number of automated teller machines (ATMs) and the volume of Electronic Funds Transfer (EFTs) on demand for narrow money (M1). Monthly aggregated data from June 2003 to March 2011 was used and a Johansen Juselius approach to cointegration was applied. In the longrun model, it is established that income has a positive effect on demand for narrow money. The opportunity cost variables of interest rate on the 90-days Treasury bill and expected inflation indicated a negative effect on demand for money. The Treasury bill rate, however, had a very smaller coefficient suggesting that the interest rate channel is still a weak monetary transmission channel. Proxy variables for payment technology innovations, that is, ATMs and EFTs have positive and significant effects on demand for M1. This emphasizes the need to take into account the effect of financial innovation in money demand estimation and when formulating monetary policies in the economy. The model was well specified basing on the results from the Ramsey Reset test, and the CUSUM and CUSUMSQ did not reveal any sign of model instability. It is recommended that for sound monetary policies, the monetary authority should consider the effect of financial innovation on demand for money.
THE EFFECTS OF FINANCIAL INNOVATIONS ON DEMAND FOR MONEY IN BOTSWANA
(University Of Bostwana, 2019-12-21) MOTSEWAKGOSI, RELETILE PHOMOLO
The study investigates the effects of financial innovation on demand for money in Botswana using annual data series for the period 1982-2017. The study uses the ARDL bounds testing approach to find the effects of financial innovation on demand for real narrow money and real broad money in Botswana. The ARDL approach integrates both the short run relationship and long run relationship. The study also estimates the demand for money function excluding the financial innovation proxy. The study also analyses the indirect effects through interactions of explanatory variables (GDP, exchange rate, inflation and interest rate with the financial innovation proxy). The results of co-integration showed that there existed a long run relationship between the demand for real narrow money and explanatory variables but no long run relationship when including financial innovation proxy. When including financial innovation proxy to the demand for real broad money model, there was co-integration of real broad money and explanatory variables. The results also showed that the financial innovation affect the real narrow money positively only in the short-run but not in the long run. Even though a long run relationship existed in real broad money when financial innovation proxy was included, the financial innovation affected the demand for real broad money negatively in the short run only. The overall net effects of financial innovation on demand for real money balances is negative. The results obtained support the theoretical and empirical studies that financial innovations do affect real money balances negatively. The interaction terms of financial innovation and macroeconomic variables showed that the effect of financial innovation depends on GDP, inflation, exchange rate and interest rate on real money balances. The marginal effect depicts a negative relationship between the financial innovation and demand for money. The study recommends that policy makers should always be thorough when estimating the demand for money. Especially that since financial innovation is an ongoing process, the unpredictable changes and uncertainties of it, could lead to misspecification of demand for money
ESTIMATING EFFECTIVENESS OF MONETARY POLICY IN ZAMBIA USING MONETARY RESPONSE FUNCTIONS.
(University Of Bostwana, 2017-05-10) Mwafulirwa, Jane
This study reviewed the effectiveness of monetary policy in Zambia using monetary response functions. The Zambian monetary policy has consisted of monetary aggregates as policy instrument from 1992 to 2012 and policy rate from 2012 to present. Effectiveness of the monetary policy was therefore estimated by running two monetary response functions, each based on one of the policy instruments. The effectiveness was determined by the policy instrument that is more responsive to macroeconomic changes. A VAR model was employed to estimate both monetary response functions using quarterly data for the period 2000 to 2016. The conclusions are based solely on the impulse response functions and the variance decomposition functions as it provides a standard deviation of the impacts of the macroeconomic variables on the monetary policy instruments. The results indicate that the policy rate responds positively to inflation gap, output gap, exchange rates and the lagged policy rate. This is in line with Taylor’s rule and shows the Central Bank systematic behaviour in monetary policy. The policy rate is seen to be biased towards output stabilization. The other response functions show that money supply responds negatively to inflation gap, output gap, exchange rates and lagged money supply. The money supply is biased towards inflation gap. The exchange rate is also observed to greatly impact money supply as an intermediate instrument. Based on this, we conclude that money supply is more effective in stabilising price, which is the main objective of monetary policy. Exchange rates aid in stabilizing price making the money supply instrument more effective than interest rate.
THE IMPACT OF MONETARY POLICY ON BANK BALANCE SHEET VARIABLES IN SUB-SAHARAN AFRICA: EVIDENCE FOR A BANK LENDING CHANNEL
(university of Malawi, 2016-09-10) ACKIM, MPHATSO ELIAS
The present study investigates the impact of monetary policy on bank balance sheet variables in sub-Saharan Africa (SSA) to test the existence of a bank lending channel. Specifically, the study examines if the interaction of real interest rates and capitalization reduce bank deposits, credit supply, and liquid assets. The study covers 31 SSA countries during the 2000 to 2014 period and groups the countries as Southern African Development Community (SADC), Economic Community of West African States (ECOWAS), Economic and Monetary Community of Central Africa (CEMAC), East African Community (EAC), and countries not grouped (Others). Using the data from these countries, the study estimates dynamic panel data models by means of system GMM methodology, and it shows that the results are group-dependent. Real interest rates significantly reduce bank deposits in ECOWAS, CEMAC, and EAC, while the interaction of real interest rates and capitalization significantly reduce bank credit in SSA and all the economic blocs. Nevertheless, the interaction of real interest rates and capitalization significantly reduce bank liquid assets only in SADC, ECOWAS, CEMAC, and EAC. Thus, the outcome of the study presents a strong case for the existence of a bank lending channel for some of the regional groupings in SSA. In this light, the most relevant implication of the study is that common monetary policy for CEMAC and proposed ones for EAC and ECOWAS may notably be transmitted through a bank lending channel to the economies of member states.
THE IMPACT OF MONETARY POLICY ON PRIVATE SECTOR CREDIT AND PRIVATE INVESTMENT IN BOTSWANA
(University Of Bostwana, 2021-11-16) MBANJWA, SENZENI
The main objective of this study was to investigate the impact of monetary policy on private sector credit and private investment in Botswana. The study employed a vector error correction model on quarterly data for the period 1990Q1 to 2017Q4. The Phillips Perron (PP) test for stationarity shows that the series are stationary at first difference. The Johansen Cointegration test depicts a long run relationship of one cointegrating vectors. The vector error correction model indicated that the monetary policy instrument i.e. bank rate has a negative impact on gross fixed capital formation in a case when the bank rate rises. This means that in a case of contractionary monetary policy, the domestic investment would fall by a magnitude of 0.02 per cent and this impact is felt in a year’s time. On the other hand, expansionary monetary policy would lead to an increase in domestic investment by 0.02 per cent. The study was able to establish that the impact of credit on private investment is not statistically significant. Economic policy recommendations such as, the use of monetary policy to boost domestic investment and monitoring and evaluation of all the investment projects funded by the Government, were made in consideration of these results
MOBILE MONEY, INCOME AND WELFARE OF SMALLHOLDER FARMERS IN SELECTED DISTRICTS IN GHANA
(UNIVERSITY OF CAPE COAST, 2019-08-02) OTENG, Clement
Mobile money offers promising ways of making financial services available to rural smallholder farmers but little is known in the Ghanaian context. The study adopts a quasi-experimental design to analyse the impact of mobile money on income and welfare of 460 smallholder farmers from Abura-Asebu-Kwamankese, Adansi South, and Shama districts in Ghana. The study utilises the propensity matching scores (PSM) and the inverse probability weighting (IPW) estimation techniques to analyse the impact of mobile money adoption among these smallholder farmers. The study finds that accessibility of mobile money significantly drives mobile money adoption. Also, the study finds that, mobile money adoption has significant positive impact on both income and welfare among smallholder farmers in the study areas. Based on the results, the study recommends that mobile money network operators should encourage people to become agents in the rural farming communities of Ghana. Again, education on mobile money should form integral part of the extension services provided to smallholder farmers.
The nexus between value addition, liquidity, and imports in Zimbabwe (1980-2015): A co-integrated VAR approach
(University of Zimbabwe, 2017-05-06) Gwacha, Benhilda
The study made an attempt to analyze empirically the nexuses between value addition, liquidity and imports in Zimbabwe. In order to make an intricate examine and understand the nexuses among the variables, imports are decomposed into two categories (Investment & raw material goods imports, and consumption & other goods import). Co-integrated VAR approach was employed to determine the relationship and data for the period 1980 to 2015 for Zimbabwe was used. The study found no evidence of granger causality between value addition and liquidity. However, empirical results derived from IRFs, and VDCs indicate that some of the variation in value addition in the long run is explained by variation in liquidity and liquidity respond to shocks in value addition in the long run as such it can be concluded that the two variables respond to the same shocks. Empirical results derived from IRFs, VDCs and granger causality show that while there is a bidirectional causality between value addition and consumption & other goods import, there is a unidirectional relationship between value addition and imports of Investment & raw material goods. There is also evidence of unidirectional causality between liquidity and the two categories of imports, running from liquidity to imports. The study also found that there is a long run relationship between the two categories of imports and liquidity, however imports of investment & raw material goods have a positive relationship with liquidity while imports of consumption &and other goods have a negative relationship with liquidity in the long run. The two categories of imports have similar relationships with value addition in the long run to those between them and liquidity. In short, an increase in liquidity will not have a significant impact on value addition in the Zimbabwean economy. Hence any polices aimed at solving the liquidity crises will not be enough to address the value addition challenges also. Therefore, the government has to address these challenges simultaneously by re-looking in to the trade policy since both value addition and liquidity are linked to imports in the economy.
The Role of Food Price Inflation in Lesotho
(University of Mauritius, 2012-03-06) Thamae, Retselisitsoe Isaiah
This dissertation analyses the role of food price movements in inflation within the Lesotho’s economy. The empirical results from this analysis reveal that food price inflation in Lesotho has generally not only been more volatile and higher than nonfood inflation, but also more persistent than the inflation of nonfood products. Furthermore, the persistent movements in food prices have appeared to be the major source of increasing inflation persistence in Lesotho, which was found to be low but rising over time. Food price movements are also discovered to have significant impact on core inflation, thereby giving evidence that food prices contain some useful information about the underlying inflation trends in Lesotho. On the other hand, the results have shown the presence of strong second-round price effects between food and nonfood inflation. These findings, therefore, implies that the setting and communication of monetary policy in Lesotho should be based on developments in underlying inflation rather than overall inflation However, any attempt to capture the underlying inflation using measures that excludes food items only on the basis of their high volatility would be unjustified.

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