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The Mystery behind Foreign Reserve Sterilization: Empirical Evidence from The Gambia

Author

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  • Joof, Foday
  • Tursoy, Turgut

Abstract

This paper investigates the impact of the foreign reserve on the domestic money supply and the level of sterilization by employing the Auto Regressive Distributed Lag for short-run estimation, the Fully Modified OLS for long run estimation and Granger Causality on a monthly data from 2002 to 2019. The short-run and long-run results revealed that foreign reserve has a positive statistically significant impact on money supply; this suggests a total lack of sterilization on the part of Central Bank of The Gambia. The Granger causality confirms a feedback association between the foreign reserve and broad money supply.

Suggested Citation

  • Joof, Foday & Tursoy, Turgut, 2020. "The Mystery behind Foreign Reserve Sterilization: Empirical Evidence from The Gambia," MPRA Paper 99929, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:99929
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    References listed on IDEAS

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    3. World Bank, 2017. "World Development Indicators 2017," World Bank Publications - Books, The World Bank Group, number 26447, April.
    4. Lehto, Taru, 1994. "The level of a central bank's international reserves : theory and cross-country analysis," Research Discussion Papers 15/1994, Bank of Finland.
    5. Robert Engle & Clive Granger, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    6. International Monetary Fund, 1997. "Sterilizing Capital inflows," IMF Economic Issues 1997/004, International Monetary Fund.
    7. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
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    Cited by:

    1. Joof, Foday, 2021. "The Co-Movement between Foreign Reserves, Economic Growth and Money Supply: Evidence from the WAMZ Countries," MPRA Paper 110193, University Library of Munich, Germany.

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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