IDEAS home Printed from https://ideas.repec.org/p/ise/isegwp/wp012021.html
   My bibliography  Save this paper

The relationship between Financial Inclusion and Monetary Stability in Mozambique: Analysis based on an Error Correction Model (VECM)

Author

Listed:
  • Carla Fernandes
  • Maria Rosa Borges
  • Esselina Macome
  • Jorge Caiado

Abstract

The present work aims to assess the existence of the relationship between financial inclusion and monetary stability in Mozambique based on the analysis of the vector correction error model (VECM) for the period from 2005 to 2020. The indicators used in the study follow the approach taken by Mbutor and Uba (2013), Lapukent (2015), Lenka and Bairwa (2016) and Hung (2016). In addition to indicators of traditional banking institutions, this article goes further by also incorporating indicators relating to services of electronic money institutions with the objective of capturing the impact of digital financial services on financial inclusion and their role in financial stability. The study presents results consistent with economic theory. The long-term VEC model proved to be statistically significant and confirmed the existence of a long-term relationship between financial inclusion and monetary stability. It also revealed that the deviation of the CPI from its long-term equilibrium is adjusted at a speed of 10.19%. The coefficients of the short-term VEC model were negative for the variables of branches and bank accounts. The coefficients of agents and EMI accounts were not positive, and their shocks are removed after 6 quarters, after which the expected negative sign is observed achieving monetary stability.

Suggested Citation

  • Carla Fernandes & Maria Rosa Borges & Esselina Macome & Jorge Caiado, 2021. "The relationship between Financial Inclusion and Monetary Stability in Mozambique: Analysis based on an Error Correction Model (VECM)," Working Papers Department of Economics 2021/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp012021
    as

    Download full text from publisher

    File URL: https://depeco.iseg.ulisboa.pt/wp/wp012021.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sanjaya Kumar Lenka & Arun Kumar Bairwa, 2016. "Does financial inclusion affect monetary policy in SAARC countries?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1127011-112, December.
    2. Peterson K. Ozili, 2018. "Impact of digital finance on financial inclusion and stability," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(4), pages 329-340, December.
    3. Mohammed Ait Lahcen & Pedro Gomis‐Porqueras, 2021. "A Model of Endogenous Financial Inclusion: Implications for Inequality and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 1175-1209, August.
    4. Angella Faith Lapukeni, 2015. "The impact of financial inclusion on monetary policy effectiveness: the case of Malawi," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 8(4), pages 360-384.
    5. Mandira Sarma, "undated". "Index of Financial Inclusion," Indian Council for Research on International Economic Relations, New Delhi Working Papers 215, Indian Council for Research on International Economic Relations, New Delhi, India.
    6. Aaron Mehrotra & G. V. Nadhanael, 2016. "Financial Inclusion and Monetary Policy in Emerging Asia," Palgrave Studies in Impact Finance, in: Sasidaran Gopalan & Tomoo Kikuchi (ed.), Financial Inclusion in Asia, chapter 4, pages 93-127, Palgrave Macmillan.
    7. Ozili, Peterson Kitakogelu, 2018. "Impact of Digital Finance on Financial Inclusion and Stability," MPRA Paper 84771, University Library of Munich, Germany.
    8. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, May.
    9. Tariq Abbasi & Hans Weigand, 2017. "The Impact of Digital Financial Services on Firm's Performance: a Literature Review," Papers 1705.10294, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xuanming Ji & Kun Wang & He Xu & Muchen Li, 2021. "Has Digital Financial Inclusion Narrowed the Urban-Rural Income Gap: The Role of Entrepreneurship in China," Sustainability, MDPI, vol. 13(15), pages 1-18, July.
    2. Guillermo Boitano & Deybi Franco Abanto, 2020. "Challenges of financial inclusion policies in Peru," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 12(1), pages 89-117, June.
    3. US Thathsarani & Jianguo Wei & GRSRC Samaraweera, 2021. "Financial Inclusion’s Role in Economic Growth and Human Capital in South Asia: An Econometric Approach," Sustainability, MDPI, vol. 13(8), pages 1-18, April.
    4. Folorunsho M. Ajide, 2021. "Shadow economy in Africa: how relevant is financial inclusion?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 29(3), pages 297-316, April.
    5. Peterson K. Ozili & David Mhlanga, 2024. "Why is financial inclusion so popular? An analysis of development buzzwords," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(1), pages 231-253, January.
    6. Shreya Pal & Indranil Bandyopadhyay, 2022. "Impact of financial inclusion on economic growth, financial development, financial efficiency, financial stability, and profitability: an international evidence," SN Business & Economics, Springer, vol. 2(9), pages 1-29, September.
    7. Guo‐Hua Cao & Jing Zhang, 2022. "The entrepreneurial ecosystem of inclusive finance and entrepreneurship: A theoretical and empirical test in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1547-1568, January.
    8. Dongjing Chen & Xiaotong Guo, 2023. "Impact of the Digital Economy and Financial Development on Residents’ Consumption Upgrading: Evidence from Mainland China," Sustainability, MDPI, vol. 15(10), pages 1-25, May.
    9. Ruixin Su & Tong Zheng & Yuzhao Zhong & Weizhou Zhong, 2023. "Role of Digital Inclusive Finance for High-Quality Business Development: A Study of China’s “Five Development Concept” Policy," Sustainability, MDPI, vol. 15(15), pages 1-21, August.
    10. Cristina Chueca Vergara & Luis Ferruz Agudo, 2021. "Fintech and Sustainability: Do They Affect Each Other?," Sustainability, MDPI, vol. 13(13), pages 1-19, June.
    11. Song, Quanyun & Li, Jie & Wu, Yu & Yin, Zhichao, 2020. "Accessibility of financial services and household consumption in China: Evidence from micro data," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    12. Wang, Yi-Ran & Ma, Chao-Qun & Ren, Yi-Shuai, 2022. "A model for CBDC audits based on blockchain technology: Learning from the DCEP," Research in International Business and Finance, Elsevier, vol. 63(C).
    13. Gallego-Losada, María-Jesús & Montero-Navarro, Antonio & García-Abajo, Elisa & Gallego-Losada, Rocío, 2023. "Digital financial inclusion. Visualizing the academic literature," Research in International Business and Finance, Elsevier, vol. 64(C).
    14. Peterson K. Ozili & David Mhlanga & Rym Ammar & Marwa Fersi, 2024. "Information Effect of Fintech and Digital Finance on Financial Inclusion during the COVID-19 Pandemic: Global Evidence," FinTech, MDPI, vol. 3(1), pages 1-17, January.
    15. Jamil, Abd Rahim Md. & Law, Siong Hook & Mohamad Khair-Afham, M.S. & Trinugroho, Irwan, 2023. "Financial inclusion and economic uncertainty in developing countries: The role of digitalisation," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 786-806.
    16. Surjeet Dalal & Bijeta Seth & Magdalena Radulescu & Carmen Secara & Claudia Tolea, 2022. "Predicting Fraud in Financial Payment Services through Optimized Hyper-Parameter-Tuned XGBoost Model," Mathematics, MDPI, vol. 10(24), pages 1-17, December.
    17. Rui Ding & Siwei Shen & Yuqi Zhu & Linyu Du & Shihui Chen & Juan Liang & Kexing Wang & Wenqian Xiao & Yuxuan Hong, 2023. "Evolution, Forecasting, and Driving Mechanisms of the Digital Financial Network: Evidence from China," Sustainability, MDPI, vol. 15(22), pages 1-18, November.
    18. Ozili, Peterson K, 2020. "Financial inclusion: a strong critique," MPRA Paper 101813, University Library of Munich, Germany.
    19. Ren, Xiaohang & Zeng, Gudian & Zhao, Yang, 2023. "Digital finance and corporate ESG performance: Empirical evidence from listed companies in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    20. Isaac Appiah-Otoo & Na Song, 2021. "The Impact of Fintech on Poverty Reduction: Evidence from China," Sustainability, MDPI, vol. 13(9), pages 1-13, May.

    More about this item

    Keywords

    Financial Inclusion; Monetary Stability; VEC Model; Digital Financial Services JEL Classification: G20; G21; G28.;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ise:isegwp:wp012021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vitor Escaria (email available below). General contact details of provider: https://aquila.iseg.ulisboa.pt/aquila/departamentos/EC .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.