The Demand for Money in Sierra Leone Revisited

Abstract

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).

Stability of Money Demand in Sierra Leone Using Autoregressive Distributed Lag (Ardl) Approach 1980 – 2018

“…The conclusion is that the estimated coefficients in the model are stable over the study period. This result conforms to WAMA (2012) and Kallon (2009Kallon ( , 1992.…”

“…Therefore, money demand is a function of income (Y), interest rate (r), and prices (P). That is, 𝑀 𝑑 = 𝑓(𝑌, 𝑃, 𝑟) Kallon (2009), employing the same methodology as Rutayisire (2010), investigated the demand for money in Sierra Leone using annual data on real money balances, consumer price index (CPI), exchange rate, real GDP, and US Treasury bill rates as proxy for foreign interest rate for the period 1964 to 2005. Using the Johansen methodology to cointegration, Kallon (2009) finds that the estimated income elasticity of long-run money demand in Sierra Leone is not significantly different from unity with a numerical value of 1.5194 suggesting there are no economies of scale in money-holding in Sierra Leone.…”

Determinants of Inflation in Sierra Leone

“…Historically, Sierra Leone enjoyed long-term economic management under British colonial rule (Luke & Riley, 1989). The deterioration of economic well-being could be traced back to the former regime's insistence on hosting the then Organisation of African Union (OAU) meeting in 1980, which somehow depleted the country's reserve without much scope for diversification in generating sufficient revenues to support buoyant economic management (Kallon, 2004;Luke and Riley, 1989).…”