Monetary Economics

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    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
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    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.
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    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.
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    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.
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    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.