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The demand for money in Tanzania

Author

Listed:
  • Adam, Christopher
  • Kessy, Pantaleo
  • Nyella, Johnson J.
  • O'Connell, Stephen A.

Abstract

We develop an econometric model of the demand for M2 in Tanzania, using quarterly data from 1998 to the present. The continuous decline in velocity since the late 1990s is associated with a transformation of economic activity that has cumulatively increased the monetary intensity of GDP. Portfolio behavior also responds to expected inflation and to exchange rate depreciation, with weaker effects from interest rates. The components of M2 respond to opportunity costs as expected, with currency more sensitive to expected inflation and deposits more sensitive to the interest rate on government securities. We discuss the policy implications of our results, including their relevance to the velocity-forecasting exercise that plays a key role in the Central Bank of Tanzania‟s policy framework.

Suggested Citation

  • Adam, Christopher & Kessy, Pantaleo & Nyella, Johnson J. & O'Connell, Stephen A., 2010. "The demand for money in Tanzania," LSE Research Online Documents on Economics 36393, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:36393
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    File URL: http://eprints.lse.ac.uk/36393/
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    Citations

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    Cited by:

    1. Adnan Haider & Asad Jan & Kalim Hyder, 2013. "On the (Ir)Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 65-119, July-Dec.
    2. Adam, Christopher & Kessy, Pantaleo, 2010. "Assessing the stability and predictability of the money multiplier in the EAC: the case of Tanzania," LSE Research Online Documents on Economics 36392, London School of Economics and Political Science, LSE Library.
    3. Mr. Hamid R Davoodi & S. V. S. Dixit & Gabor Pinter, 2013. "Monetary Transmission Mechanism in the East African Community: An Empirical Investigation," IMF Working Papers 2013/039, International Monetary Fund.
    4. John Bosco Nnyanzi, 2018. "The Interaction Effect of Financial Innovation and the Transmission Channels on Money Demand in Uganda," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(12), pages 1-1, December.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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