scholarly journals Stability Of Money Demand In A Developing Economy: Empirical Evidence From South Africa

2013 ◽  
Vol 12 (5) ◽  
pp. 565
Author(s):  
Ferdinand Niyimbanira
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Interest Rates ◽  
Error Correction ◽  
Money Demand ◽  
Emergency Situation ◽  
Vital Role ◽  
Policy Implications ◽  
Future Research ◽  
Explanatory Variables

A stable money demand function plays a vital role in the analysis of macroeconomics, especially in the planning and implementation of monetary policy. When investigating the theory of money demand, there are some important issues that need to be considered, such as the choice of the appropriate measure of money, the scale variable (income or wealth) and the opportunity cost variable (short- or long-term interest rates). This paper estimates a stable long-run equilibrium relationship between real money demand (RM2) and its explanatory variables in South Africa, using cointegration and error correction methods. The results obtained confirm the existence of such stable equilibrium relationships. The crucial results from the Error Correction model (ECM) indicate that monetary policy in South Africa is effective. However, in spite of its efficiency, monetary policy does not have a quick effect, needing at least four quarters (one year) from its inception to make a real difference. In other words, there might be difficulties in implementing monetary policy in an emergency situation. Policy implications and suggestions for future research are made in the paper.

scholarly journals Money Demand In South Africa Revisited: A Detailed Analysis Of Different Models

2013 ◽  
Vol 12 (4) ◽  
pp. 427
Author(s):  
Ferdinand Niyimbanira
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
South African ◽  
Money Demand ◽  
Demand Function ◽  
Theory And Practice ◽  
Empirical Literature ◽  
Future Research ◽  
Demand For Money ◽  
Money Demand Function

Many macroeconomists acknowledge the importance of behavior in a money demand relationship when formulating an efficient monetary policy. Many efforts have been made to estimate the money demand in function using many different specifications. This paper discusses South African empirical literature review of money demand. It revealed that different methods have been used to analyze the demand for money in South Africa, such as the linear function approach, the partial stock adjustment model, and the buffer stock disequilibrium money model. This study also discovered that few studies are done using co-integration and error correction methods and not all of these studies show that the money demand function in South Africa is stable. Implication for theory and practice, as well as area of future research, are also discussed in the study.

scholarly journals An Investigation Into The Demand For Broad Money In South Africa

2014 ◽  
Vol 13 (6) ◽  
pp. 1419
Author(s):  
Moreblessing Simawu ◽  
Courage Mlambo ◽  
Genius Murwirapachena
Keyword(s):  
South Africa ◽  
Money Demand ◽  
Capital Mobility ◽  
Vital Role ◽  
Correction Model ◽  
Explanatory Variables ◽  
Long Run ◽  
Short Run ◽  
Implementation Of Monetary Policy ◽  
The Impact

A stable money demand function plays a vital role in the planning and implementation of monetary policy. With the use of Johansen co-integration and error correction model estimates, this study examines the existence of a stable long-run relationship between real broad money demand ( RM3) and its explanatory variables in South Africa for the period 1990-2009. In contrast to previous analyses, this study augments the co-integration and vector autoregression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long-run effects and short-run dynamic effects on the real money demand. In addition, this study introduces a foreign interest rate to capture the impact of capital mobility on money demand in South Africa. Results from the Johansen test suggest that real broad money demand (RM3) and its all explanatory variables are cointegrated.

scholarly journals The Determinants of Interest Rate Spreads in South Africa: A Cointegration Approach

2015 ◽  
Vol 7 (2(J)) ◽  
pp. 101-108
Author(s):  
Ferdinand Niyimbanira ◽  
Sanderson Sabie Kuyeli . ◽  
Koleka Rangaza .
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
South African ◽  
Policy Implications ◽  
Future Research ◽  
The South ◽  
Reserve Requirements ◽  
Explanatory Variables ◽  
Interest Rate Spreads ◽  
The Interest Rate

This study empirically identifies the determinants of interest rate spreads (IRS) in South Africa over the period 1990 to 2012. The study uses the Johansen Cointegration Approach and Vector ErrorCorrection techniques to identify the variables in explaining the interest rate spreads in South Africa. It considers the inflation rate, reserve requirements, Treasury bill, discount rate, money supply (M2) and gross domestic product per capita variables as they explain the movement of interest rate spreads. A significant short-run relationship between IRS and its explanatory variables was observed. These macroeconomic variables are significant in explaining the behavior of the South African IRS in the longrun. This paper has focused on illuminating on how the interest rate spreads are impacted by both exogenous and endogenous variables. If controlled, these variables are most likely to have the largest effects on reducing such spreads. In addition, it suggests that the reduction in the reserve requirements prescribed by the South African Reserve Bank would help to reduce the interest rate spreads. Based on the results of the study, policy implications and suggestion for future research are made.

scholarly journals Identifying The Long-Run Relationship Of Real Money Demand, Real Income And Prime Interest Rates In South Africa

2013 ◽  
Vol 12 (9) ◽  
pp. 1001
Author(s):  
Ferdinand Niyimbanira ◽  
Job Dubihlela
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Demand ◽  
Real Income ◽  
Real Money ◽  
Explanatory Variables ◽  
Identification Schemes ◽  
Long Run ◽  
One Year

This paper analyses the long-run demand for money in South Africa for the period 1971-2010. In particular, the paper estimates a co-integrated vector autoregression model of the long-run relationship between real money demand, real income and prime interest rate. A variety of theory consistent identification schemes, tests for co-integration, co-integration regression and error-correction-model (ECM) were applied in the order of the estimation approach developed by Johansen (1991). Preliminary data were also subjected to the autocorrelation function. Results show that the estimated elasticities indicate that a long-run equilibrium relationship exists between real money (M2), real income and the prime interest rate in South Africa. As expected, the coefficient of the equilibrium error term was found to be negative and significantly different from zero, implying that 0.227 of discrepancy between real money demand and its explanatory variables is eliminated in the following year. Evidence indicates that the retarded speed of adjustment for real money demand in South Africa needs about one year to re-adjust.

Exchange Rates and the Effectiveness of Actual and Oral Official Interventions: A Survey on Findings, Issues and Policy Implications

2010 ◽  
Vol 10 (4) ◽  
pp. 1850213 ◽  
Author(s):  
Nevin Cavusoglu
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Policy Implications ◽  
Consistent Finding ◽  
Macroeconomic Variables ◽  
Explanatory Variables ◽  
Monetary Authorities ◽  
Exchange Rate Movements ◽  
Exchange Markets

Monetary authorities of many open economies have been regularly intervening in foreign exchange markets for years to limit volatility in exchange rates and/or push exchange rates back to some desired level. Such interventions have taken the form of actual and oral official interventions. Review of studies investigating the effectiveness of interventions reveals one major issue, related to the assumption that interventions are mostly sterilized. This assumption might lead to unreliable results when changes in interest rates and interventions are both used as explanatory variables for exchange rates. One major consistent finding is that intervention has a significant but short-lasting effect on exchange rates. Studies have reached this conclusion by investigating whether intervention has been effective in turning around the exchange rate over the few days, weeks or months following intervention(s). Only a few studies have investigated and provided evidence that intervention has been effective in limiting long swings in exchange rates. Studies testing for the effectiveness of interventions specifically through the signaling channel also provide evidence on the importance of macroeconomic variables for exchange rates. The significance of official intervention and official communication for exchange rate movements combined with the importance of macroeconomic variables for exchange rates provide a role for official intervention and parity announcement to influence exchange rate movements and limit the magnitude of exchange rate swings.

scholarly journals Komparasi Jalur Moneter untuk Stabilitas Harga Dalam Kerangka Inflation Targeting Framework (Studi kasus pada interest rate, exchange rate dan credit channel)

2019 ◽  
Vol 8 (3) ◽  
pp. 181
Author(s):  
Setyo Tri Wahyudi ◽  
Rinny Apriliany Zakaria ◽  
Nurul Badriyah
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
Inflation Targeting ◽  
Correction Term ◽  
Secondary Data ◽  
Credit Channel ◽  
The Right

The monetary policy transmission mechanism has many ways in influencing inflation. This method became known as the monetary path. The use of appropriate channels in monetary policy will affect whether or not the objectives of the monetary policy are achieved. This study aims to determine which monetary path is appropriate for Indonesia, which is a developing country with an open economic system. The data used are secondary data taken from Bank Indonesia for the period 2005 to 2016. The research variables include inflation, BI-rate, credit interest rates (SBB), gross domestic product (GDP), exchange rate, bank reserve (BBR), and the amount of credit extended. This study focuses on the path of interest rates, exchange rates and bank credit using the Error Correction Model (ECM). The results of this study indicate that the right monetary path for Indonesia is the credit channel. This is because the value of the Error Correction Term (ECT) coefficient on the ECM model shows that the coefficient of the credit channel is smaller than the interest rate and exchange rate channel, which means that the imbalance that occurs can be resolved more quickly with the credit channel.

scholarly journals Money Demand in Rwanda: A Cointegration Analysis 2008Q3-2015Q4

2016 ◽  
Vol 2 (2) ◽  
pp. 46 ◽  
Author(s):  
Fabrice Nkurunziza
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Money Demand ◽  
Error Correction Model ◽  
Cointegration Analysis ◽  
Impulse Response Functions ◽  
Correction Model ◽  
Narrow Definition ◽  
Definition Of

This paper estimates the demand for money in Rwanda over the 2008Q3 to 2015Q4 period via unit root and cointegration methods. Utilizing the Johansen cointegration methodology, it establishes that a long-term relationship exists among the included variables. The paper also estimates an error correction model (ECM) as well as a vector error correction model (VECM), extending previous analyses by testing for Granger causality among the variables. It finds that the narrow definition of money, M1, serves as a relatively better measure of the money aggregate than M2, and M3. The long-term interest rate (LKRR) also seems to provide relatively better results than the short-term rate (LRR, and LTR) when we use broad money definition, M2. Both the ECM and VECM for M1, narrow definition of money estimates showed the expected signs, in the ECM model as expected LM1 and LGDP were positively related while LM1 and LKRR, LRR, and LTR were negatively related. The adjustment coefficient in the ECM showed that about 79.75 % of disequilibrium is corrected in each quarter. Impulse response functions suggest that the traditional money demand function, which places LM1 as its ‘dependent’ variable while including income and interest rates as its regressors, was stable with little responses in the specific case of Rwanda over the period under review.

scholarly journals Monetary policy transparency and financial market forecasts in South Africa

2008 ◽  
Vol 2 (1) ◽  
pp. 31-56 ◽  
Author(s):  
Vivek Arora
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Empirical Work ◽  
Economic Benefits ◽  
Cross Sectional ◽  
Inflation Forecasts ◽  
Reserve Bank ◽  
Monetary Policy Transparency

The transparency of monetary policy in South Africa has increased substantially since the end of the 1990s. But little empirical work has been done to examine the economic benefits of the increased transparency. This paper shows that, in recent years, South African private sector forecasters have become better able to forecast interest rates, are less surprised by reserve bank policy announcements, and are less diverse in the cross-sectional variety of their interest rate forecasts. In addition, there is some evidence that the accuracy of inflation forecasts has increased. The improvements in interest rate and inflation forecasts have exceeded those in real output forecasts, suggesting that increases in monetary policy transparency are likely to have played a role.

scholarly journals Political Business Cycles and Their Policy Implications: An Extension of Alesina`s Model

2009 ◽  
Vol 24 (1) ◽  
pp. 127-147
Author(s):  
Chung Ji Eun ◽  
Jung Kwang Ho
Keyword(s):  
Business Cycles ◽  
Interest Rates ◽  
Empirical Work ◽  
The United States ◽  
Policy Implications ◽  
Future Research ◽  
Policy Outcomes ◽  
Money Growth ◽  
Political Business Cycles ◽  
Stock Market Performance

This paper reviews and empirically tests the most recent theoretical and empirical work on political business cycles in the United States. It focuses on the rational partisan theory of Alesina et al. (1997) and extends their data from 1994 to 2005. We tested three different political business cycle modles-the opportunistic, traditional partisan, and rational partisan models-to observe whether they remain valid. Overall, our results show that the rational partisan model outperforms both the opportunistic model and the traditional partisan modls in explaining the variations of monetary and fiscal policy outcomes, which are consistent with Alesina et al.'s work (1997). More specifically, we found a significant partisan effect on money growth, a weak partisan effect on the federal funds rate, and no partisan effect on other interest rates including the discount rate, three-month Treasury bill, and ten-year Treasury note. Our finding on the partisan effects of money growth resemble those of Alesina (1988), but our results on interest rates differ. In addition, we found a strong partisan effect on the budget deficit (higher during republican administrations) and no partisan effect on the level of government transfers. Both findings are consistent with Alesina's work (1988). Future research is required to identify how partisan effects vary across both developed and developing countries and how stock market performance and the role of the central bank during presidential elections are related.

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