This paper is an econometric study of the inflationary process in Sierra Leone. Using data for the 1967:1-1987:4 period, the parameters of a reduced-form inflation equation from an openeconomy IS-LM model were estimated for the Sierra Leonean economy. The results reject the monetarist assertion that velocity is constant and that a percentage change in the money supply leads to an equiproportionate change in the inflation rate in the short run. In the long run, however, the hypothesis that money-supply growth would lead to an equiproportionate increase in the price level could not be rejected. Additionally, the evidence suggests that part of Sierra Leone's inflation is imported from the rest of the world. On the other hand, international capital mobility is not a contributing factor to Sierra Leone's inflation problem.
In this paper, I use a novel approach to estimate Sierra Leone's aggregate capital stock from gross fixed investment and depreciation. Using Johanssen's maximum-likelihood cointegration methodology, I then estimate the parameters of the country's long-run per capita aggregate production function. Thereafter, the sources of economic growth are calculated, the key finding being that economic growth in post-independence Sierra Leone has been propelled by mostly capital accumulation. The implications of this capital-driven growth on poverty reduction and income distribution are then discussed. Policy recommendations for how to simultaneously promote economic growth and improve the living standard of the average Sierra Leonean are also provided.
This paper uses Johansen's cointegration methodology to estimate Sierra Leone's money long run demand function for the 1964-2005 period. It finds a stable long-run relationship between the quantity of real money balances and its determinants. Secondly, all the estimated coefficients have their expected signs. Additionally, as expected in economies with under-developed financial systems, Sierra Leone's long-run money demand function is unit income-elastic and interest-rate inelastic. Thus, the study provides support for the neoclassical money demand specification. Additionally, it reaffirms the central findings of Kallon (1992).
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