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Some Empirical Evidence on the Stability of Money Demand in Kenya

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  • Moses C. Kiptui

    (Kenya School of Monetary Studies, P.O. Box 65041- 00618, Ruaraka, Nairobi, Kenya.)

Abstract

This study examines the stability of the demand for money in Kenya owing to conflicting results derived from previous studies which have cast doubt on the relevance of monetary targeting. Bounds testing techniques are applied and an error correction model estimated. Demand for broad monetary aggregates is shown to be stable. Moreover, the real income elasticity estimates derived in the analysis are reasonably within the range expected in the Baumol-Tobin framework while the interest rate (Treasury bill rate) elasticity is in the expected range of -0.1 to -0.5. An uncertainty variable incorporated in the model is found to have positive effects on demand for broad monetary aggregates particularly M2 money demand, implying that uncertainty drives economic agents to subsequently switch to relatively liquid assets. The finding that demand for broad monetary aggregates is stable can be interpreted to mean that monetary targeting remains relevant in the Kenyan context.

Suggested Citation

  • Moses C. Kiptui, 2014. "Some Empirical Evidence on the Stability of Money Demand in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 849-858.
    • Handle: RePEc:eco:journ1:2014-04-13
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    Cited by:

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    2. John Paul Dunne & Elizabeth Kasekende, 2018. "Financial Innovation and Money Demand: Evidence from Sub‐Saharan Africa," South African Journal of Economics, Economic Society of South Africa, vol. 86(4), pages 428-448, December.
    3. Adnan A. Saed & Walid Al-Shawaqfeh, 2017. "The Stability of Money Demand Function in Jordan: Evidence from the Autoregressive Distributed Lag Model," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 331-337.
    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.
    5. Yannick Roussel & Amjad Ali & Marc Audi, 2021. "Measuring The Money Demand In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 27-41, March.
    6. Allan Kayongo & Asumani Guloba & Joseph Muvawala, 2020. "Asymmetric Effects of Exchange Rate on Monetary Policy in Emerging Countries: A Non-Linear ARDL Approach in Uganda," Applied Economics and Finance, Redfame publishing, vol. 7(5), pages 24-37, September.

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    More about this item

    Keywords

    Money demand; stability; monetary policy formulation;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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