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Economic reform and the stability of the demand for money in Tanzania

Economic reform and the stability of the demand for money in Tanzania This paper investigates whether there exists a stationary long-run equilibrium relationship between real money balances, real income, inflation and expected depreciation in Tanzania which can be identified as a money demand function. As the institutional and regulatory framework in Tanzania has undergone a series of changes since economic reforms began in the mid-1980s, shifts in parameters over time might have occurred, causing instability in the money demand function. Using Johansen's maximum likelihood and dynamic modelling procedure, the paper finds equilibrium in the long run and a stable money demand function. These findings imply that, even though economic liberalization and relaxation of controls could have induced instability in the money demand function as conjectured in the literature, such instability was not significant enough to inhibit the estimation of short- and long-run demand for money. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of African Economies Oxford University Press

Economic reform and the stability of the demand for money in Tanzania

Journal of African Economies , Volume 8 (3) – Oct 1, 1999

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Publisher
Oxford University Press
Copyright
Oxford University Press
ISSN
0963-8024
eISSN
1464-3723
Publisher site
See Article on Publisher Site

Abstract

This paper investigates whether there exists a stationary long-run equilibrium relationship between real money balances, real income, inflation and expected depreciation in Tanzania which can be identified as a money demand function. As the institutional and regulatory framework in Tanzania has undergone a series of changes since economic reforms began in the mid-1980s, shifts in parameters over time might have occurred, causing instability in the money demand function. Using Johansen's maximum likelihood and dynamic modelling procedure, the paper finds equilibrium in the long run and a stable money demand function. These findings imply that, even though economic liberalization and relaxation of controls could have induced instability in the money demand function as conjectured in the literature, such instability was not significant enough to inhibit the estimation of short- and long-run demand for money.

Journal

Journal of African EconomiesOxford University Press

Published: Oct 1, 1999

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