A Monetarist Model of Inflation: Kenyan Case*

Ndung’u, Njuguna

doi:10.1111/j.1467-8268.1994.tb00062.x

Cited by 11 publications

(15 citation statements)

References 13 publications

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“…To consolidate the gains from the reforms, the central bank of Ghana (BoG) shifted from the use of the exchange rate as a nominal anchor to the use of monetary targets. Under the new regime, quantitative money targets were used as intermediate targets, to achieve ultimate goals such as moderate inflation rate, high output growth rate, and low unemployment rate, among others (see Ndung'u, ; Quartey and Afful‐Mensah, ). Two variants of monetary targeting were operated: directed credit from 1982 to 1991 and open market operation from 1992 to 2006.…”

Section: Introductionmentioning

confidence: 99%

Monetary Aggregates Targeting, Inflation Targeting and Inflation Stabilization in Ghana

Abango¹,

Yusif²,

Issifu³

2019

African Development Review

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The central bank of Ghana (BoG) has operated monetary aggregates targeting and inflation targeting since the 1980s, to ensure enhanced output growth, low unemployment and stable, low inflation. Under inflation targeting, the inflation rate averaged 13.26 per cent per annum between 2007 and 2015, compared with 29.22 per cent per annum under monetary aggregates targeting. The relatively lower inflation rates notwithstanding, an average inflation rate of 13.2 per cent per annum is far above the medium-term target of 8 per cent. This paper has examined the effectiveness of monetary aggregates targeting and inflation targeting in keeping inflation at moderate levels. The autoregressive distributed lag (ARDL) model was applied to the data covering the period 1970-2015. The results show that monetary targeting has steered inflation to moderate levels only in the short run while inflation targeting has maintained low inflation rates in both short run and long run. But neither regime has kept inflation at stable levels and within the target band, due to the sluggish transmission of broad money supply and prime rate changes to inflation. We implore the monetary authorities to strengthen the institutional setup for steering short-term interest rates in Ghana. They should also enhance the BoG Act 2002 (Act 612), to develop secondary anchors and rules around output, money supply and fiscal deficit. Finally, the monetary policy committee should monetary policy credibility and transparency through strengthening its communication framework.

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Section: Introductionmentioning

confidence: 99%

Monetary Aggregates Targeting, Inflation Targeting and Inflation Stabilization in Ghana

Abango¹,

Yusif²,

Issifu³

2019

African Development Review

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“…Second, technological progress may have changed the relationship between nominal broad money supply and price. Long-run price homogeneity is imposed in line with earlier demand for money studies in Kenya such as Killick and Mwega (1990), Adams (1992), Ndungú (1994), andKisinguh et.al. (2004).…”

Section: Integration and Cointegration Analysismentioning

confidence: 92%

Demand For Money: Implications for The Conduct of Monetary Policy in Kenya

Sichei¹,

Kamau²

2012

IJEF

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The paper analyses demand for different monetary aggregates (M0, M1, M2 and M3) in Kenya for the period 1997:4-2011:2. Dynamic frameworks are used to estimate and uncover parsimonious and empirically stable demand for money functions. Price, real GDP, nominal 91-Day Treasury bill rate, nominal interbank rate, nominal deposit rate and foreign interest rate affected the long-run demand for money functions to different degrees. The demand for money functions is found to be unstable over the period for the parameter values, implying that the current monetary targeting policy framework is inappropriate. However, there are challenges in adopting an alternative monetary policy framework.

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“…This was because that at a higher interest rate, it meant more returns on alternative assets, therefore economic agents will hold less money and more of the alternative assets. Studies such as Ndung'u (1994); Sichei and Kamau (2012) and Kiptui (2014) all reported similar findings.…”

mentioning

confidence: 58%

“…Nonetheless, Laidler (1982) contended that a reasonably quantified income elasticity should be in the range of 0.5 to 1.0. Studies like Ndung'u (1994) and Ndele (1991) also found an income elasticity that was above unity.…”

mentioning

confidence: 89%

“…Few studies were done on Kenya. A cursory look at the literature on the demand for money in Kenya show that studies such as; Pathak (1981); Darrat (1985); Mwega and Killick (1990); Adam (1992); Fielding (1994);Ndung'u (1994); Bahmani-Oskooee and Gelan (2009); Sichei and Kamau (2012); Kiptui (2014) all attempted to investigate the money demand for Kenya using different data structures and employing different econometric techniques. Mwega and Killick (1990) studied a group of African countries including Cameroun, Ivory Coast, Kenya and Nigeria using a quarterly data spanning over the period from first quarter of 1976 to the second quarter of 1987, applying Johansen cointegration, they found that real income, interest rate, inflation, exchange rate were the main determinants of money demand and that the function is stable.…”

Section: Literature Reviewmentioning

confidence: 99%

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Financial Sector Reforms, Monetary and Output Uncertainties and the Behavior of Money Demand in Kenya: The Divisia Index Approach

Abdullah¹,

El-Rasheed²

2019

Asian Economic and Financial Review

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The financial sector reforms implemented by the Central Bank of Kenya (CBK) resulted in rapid financial innovation (such as the popular M-Pesa mobile money services) growth, and expansion of several interest earning financial instruments. These developments affect the definition and composition of monetary aggregates, posing a question on the correctness of the current money measures used by CBK. The simple sum aggregates were identified with several theoretical and empirical shortcomings. The rapid financial sector development might affect the stability of money demand function. This study constructs Divisia monetary aggregates for Kenya over the period of 2000's first quarter to 2015's third quarter and applies the ARDL method in investigating the stability of money demand function. For the first time, monetary uncertainty and output uncertainty variables are introduced to the Kenyan money demand model. The results reveal that both monetary and output uncertainty has significant influence on money demand in Kenya. This implies that omitting the two variables in the Kenya money demand function might lead to a wrong specification. The money demand function is stable over the period. It means that monetary aggregates targeting is the right framework for monetary policy formulation by the CBK.Contribution/ Originality: This study constructs Divisia monetary aggregates for Kenya over the period of 2000's first quarter to 2015's third quarter and applies the ARDL method in investigating the stability of money demand function.

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A Monetarist Model of Inflation: Kenyan Case*

Cited by 11 publications

References 13 publications

Monetary Aggregates Targeting, Inflation Targeting and Inflation Stabilization in Ghana

Monetary Aggregates Targeting, Inflation Targeting and Inflation Stabilization in Ghana

Demand For Money: Implications for The Conduct of Monetary Policy in Kenya

Financial Sector Reforms, Monetary and Output Uncertainties and the Behavior of Money Demand in Kenya: The Divisia Index Approach

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