This document summarizes a study that examines the impact of financial liberalization on money demand in the Central African Economic and Monetary Community (CEMAC) using generalized method of moments estimations. The study aims to assess the effect of interest rates and bank credit to the private sector on money demand. It reviews theories on the relationship between financial liberalization and money demand and related empirical literature. The empirical analysis uses a money demand function and panel data to determine whether financial liberalization has negatively impacted money demand in CEMAC through changes in interest rates and bank credit levels.
We like rates structurally, both on adequate valuations (breakeven levels: 5y, 3.55% (2.98%); and 10y, 3.36% (3.09%)) and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle. Based on our macro risk-neutral model and pure expectations, we see 1.80-2.50% and 2.10-2.30% on the UST 5 and 10. Our view is to stay long on the UST 5-10y, prefer 7y; tactical view suggests range trading, 10T around 2.80-3.20%, into 1H19 (Fed hikes by 75bps to 2.75-3.00% by 1H19; anchor extent of rates rally; near term upside risks of a Republican sweep of the mid-terms, providing the President and the Republican Party with another opportunity to pursue even looser (pro-wealth) fiscal policy.
201906 FOMC - An ounce of prevention is worth a pound of cure, unless when th...QuanJianChingCFACAIA
Key drivers will revolve around, i) global trade negotiations/future framework and its implications; ii) contagion from global growth slowdown and weakness in the industrial sector (disruptions to semi-cons, autos, energy sectors; Boeing); and iii) changes, if any, to the Fed’s reaction function. We do not see sufficient evidence of a steep slowdown into an outright recession (though recognize the uncertainties) which markets have broadly priced. The scale of policy guidance and aggressively priced rates markets, we believe, will turn out to be an error. Global financial conditions are rapidly easing, pushing up asset valuations on highly uncertain fundamentals with aggressively dovish pricing limiting future policy room to support markets. Instead of seeking to dampen volatility, it would have been better to realign markets to the Fed’s (strategic) reaction function and allow global markets to find its own levels (via two way volatility).
Tactically, we think that duration is rich and see US5T and US10T closer to 2.30-2.60% into 1H20 (+10-15bps in breakevens; +30-40bps in TP), expecting a bear steepening; preferring rolling the 3 month. Duration-adjusted, prefer front/backend to 2-7 years.
With a backdrop of accommodative policy and our view of generally anchored inflation and resilient growth over coming quarters, we believe that risk/carry will remain supported into 2H19, within the current context (using more binary rather than probabilistic analytical lenses; prolonged clarity over the opportunity cost of risk-free asset amid broadly stable growth/inflation).
We like rates structurally, both on adequate valuations (breakeven levels: 5y, 3.55% (2.98%); and 10y, 3.36% (3.09%)) and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle. Based on our macro risk-neutral model and pure expectations, we see 1.80-2.50% and 2.10-2.30% on the UST 5 and 10. Our view is to stay long on the UST 5-10y, prefer 7y; tactical view suggests range trading, 10T around 2.80-3.20%, into 1H19 (Fed hikes by 75bps to 2.75-3.00% by 1H19; anchor extent of rates rally; near term upside risks of a Republican sweep of the mid-terms, providing the President and the Republican Party with another opportunity to pursue even looser (pro-wealth) fiscal policy.
201906 FOMC - An ounce of prevention is worth a pound of cure, unless when th...QuanJianChingCFACAIA
Key drivers will revolve around, i) global trade negotiations/future framework and its implications; ii) contagion from global growth slowdown and weakness in the industrial sector (disruptions to semi-cons, autos, energy sectors; Boeing); and iii) changes, if any, to the Fed’s reaction function. We do not see sufficient evidence of a steep slowdown into an outright recession (though recognize the uncertainties) which markets have broadly priced. The scale of policy guidance and aggressively priced rates markets, we believe, will turn out to be an error. Global financial conditions are rapidly easing, pushing up asset valuations on highly uncertain fundamentals with aggressively dovish pricing limiting future policy room to support markets. Instead of seeking to dampen volatility, it would have been better to realign markets to the Fed’s (strategic) reaction function and allow global markets to find its own levels (via two way volatility).
Tactically, we think that duration is rich and see US5T and US10T closer to 2.30-2.60% into 1H20 (+10-15bps in breakevens; +30-40bps in TP), expecting a bear steepening; preferring rolling the 3 month. Duration-adjusted, prefer front/backend to 2-7 years.
With a backdrop of accommodative policy and our view of generally anchored inflation and resilient growth over coming quarters, we believe that risk/carry will remain supported into 2H19, within the current context (using more binary rather than probabilistic analytical lenses; prolonged clarity over the opportunity cost of risk-free asset amid broadly stable growth/inflation).
Inferences from Interest Rate Behavior for Monetary Policy SignalingIOSR Journals
Weak mean reversion of interest rates towards the long term mean suggests high probability of agents in financial markets failing to interpret monetary policy signalling efficiently and financial market related interest rate unable to achieve equilibrium. Increased randomness penetrating interest rate markets is due to the weak monetary policy signalling effect which dilutes information flow from central banks’ to agents in the financial market. In such cases the effectiveness monetary policy erodes as it departs from the objectives of central banks and financial regulators
But resolving this legacy issue with continued application of past interventionist instruments does not incentivize the much needed structural reforms and private capital market activities. Financial repression has induced a re-allocation of capital across markets and greatly enhanced the role of public markets at the detriment of private market activities. Artificially low – or in some cases even negative – interest rates break the credit intermediation channel which can crowd out viable private investors.
Fed must relent. Our expectations now is for a state dependent (global financial conditions to stabilise, cushion rising debt repayment burden and allowing domestic leverage to level off, coupled with still moderate economic growth/inflation, policy options to widen positively globally, especially in China) Fed relent with scope for a final 25-50bps, if any (pause otherwise), in late 2019/2020, should the cycle extents, with the FFR hitting cycle terminal at 2.75-3.00%.
Dynamic Impact of Money Supply on Inflation: Evidence from ECOWAS Member Statesiosrjce
According to the monetarists, inflation is essentially a monetary phenomenon in the sense that a
continuous rise in the general price level is due to the rate of expansion in money supply far in excess of the
money actually demanded by economic units. But the link between changes in money supply and inflation is not
instantaneous. This study, therefore, assessed this dynamic linkage between money supply and inflation in
ECOWAS member states; West African Monetary Zone (WAMZ) and West African Economic Monetary Union
(WAEMU) for the period 1980-2012. The stationary properties of the series are explored both at univariate and
panel sense using KPSS and ADF; IPS and LLC. The results revealed that money supply and inflation are
stationary at the level for individual countries and at panel sense. The random effect model for ECOWAS
member states shows that the impact of money supply on inflation is effective in the current and first period.
While the impact is effective in the first period for WAMZ, WAEMU experiences the impact in current period.
The finding also reveals that there are significant specific-country effects on the variables. This implies that the
objective of macroeconomic convergence is yet to be achieved. The paper, therefore recommends that inflation
should be used as an operational guide in evaluating the effectiveness of monetary policy and also a strong
monetary cooperation programme among ECOWAS member states should be evolved.
Ukrainian Catholic University
Faculty of Applied Sciences
Data Science Master Program
January 21st
Abstract. Novelty is an inherent part of innovations and discoveries. Such processes may be considered as the appearance of new ideas or as the emergence of atypical connections between existing ones. The importance of such connections hints for investigation of innovations through network or graph representation in the space of ideas. In such representation, a graph node corresponds to the relevant notion (idea), whereas an edge between two nodes means that the corresponding notions have been used in a common context. The question addressed in this research is the possibility to identify the edges between existing concepts where the innovations may emerge. To this end, a well-documented scientific knowledge landscape has been used. Namely, we downloaded 1.2M arXiv.org manuscripts dated starting from April 2007 and until September 2019; and extracted relevant concepts for them using ScienceWISE.info platform. Combining approaches developed in complex networks science and graph embedding the predictability of edges (links) on the scientific knowledge landscape where the innovations may appear is investigated. We argue that the conclusions drawn from this analysis may be used not only to the scientific knowledge analysis but are rather generic and may be applied to any domain that involves creativity within.
Financial crisis: Non-monetary factors influencing Employee performance at ba...AI Publications
Money and credit fluctuations, financial crises, and governmental responses have come into the spotlight as a result of the crisis that lasted from 2014 to 2018. The primary objective of this study was to investigate the non-financial elements that have an effect on employee performance in the Kurdistan region of Iraq in general and in Erbil in particular. In spite of this, the researcher came up with five assumptions about study that needed to be evaluated and quantified in order to assess how well employees performed amid financial crises. It was found that job security had the highest value, which indicates that job security has the most powerful and positive association with employee performance during financial crisis. On the other hand, job enrichment was found to be the least powerful factor that influences and is related to employee performance during financial crisis in the Kurdistan region of Iraq. The researcher used simple regression analysis to measure the developed research hypotheses.6
Non-monetary effects Employee performance during Financial Crises in the Kurd...AI Publications
The crisis of 2014-2018 has focused attention on money and credit fluctuations, financial crises, and policy responses. The main aim of this research was to examine the non-monetary factors affecting employee performance in Kurdistan region of Iraq as general and Erbil as particular. However, the researcher developed five research hypotheses to be tested and measured to evaluate employee performance during financial crises. The researcher implemented simple regression analysis to measure the developed research hypotheses, it was found that the highest value was for job security, this indicates the job security has the most powerful and positive association with employee performance during financial crisis, on the other hand the least powerful was found to be job enrichment that influences and related to employee performance during financial crisis in Kurdistan region of Iraq.
Inferences from Interest Rate Behavior for Monetary Policy SignalingIOSR Journals
Weak mean reversion of interest rates towards the long term mean suggests high probability of agents in financial markets failing to interpret monetary policy signalling efficiently and financial market related interest rate unable to achieve equilibrium. Increased randomness penetrating interest rate markets is due to the weak monetary policy signalling effect which dilutes information flow from central banks’ to agents in the financial market. In such cases the effectiveness monetary policy erodes as it departs from the objectives of central banks and financial regulators
But resolving this legacy issue with continued application of past interventionist instruments does not incentivize the much needed structural reforms and private capital market activities. Financial repression has induced a re-allocation of capital across markets and greatly enhanced the role of public markets at the detriment of private market activities. Artificially low – or in some cases even negative – interest rates break the credit intermediation channel which can crowd out viable private investors.
Fed must relent. Our expectations now is for a state dependent (global financial conditions to stabilise, cushion rising debt repayment burden and allowing domestic leverage to level off, coupled with still moderate economic growth/inflation, policy options to widen positively globally, especially in China) Fed relent with scope for a final 25-50bps, if any (pause otherwise), in late 2019/2020, should the cycle extents, with the FFR hitting cycle terminal at 2.75-3.00%.
Dynamic Impact of Money Supply on Inflation: Evidence from ECOWAS Member Statesiosrjce
According to the monetarists, inflation is essentially a monetary phenomenon in the sense that a
continuous rise in the general price level is due to the rate of expansion in money supply far in excess of the
money actually demanded by economic units. But the link between changes in money supply and inflation is not
instantaneous. This study, therefore, assessed this dynamic linkage between money supply and inflation in
ECOWAS member states; West African Monetary Zone (WAMZ) and West African Economic Monetary Union
(WAEMU) for the period 1980-2012. The stationary properties of the series are explored both at univariate and
panel sense using KPSS and ADF; IPS and LLC. The results revealed that money supply and inflation are
stationary at the level for individual countries and at panel sense. The random effect model for ECOWAS
member states shows that the impact of money supply on inflation is effective in the current and first period.
While the impact is effective in the first period for WAMZ, WAEMU experiences the impact in current period.
The finding also reveals that there are significant specific-country effects on the variables. This implies that the
objective of macroeconomic convergence is yet to be achieved. The paper, therefore recommends that inflation
should be used as an operational guide in evaluating the effectiveness of monetary policy and also a strong
monetary cooperation programme among ECOWAS member states should be evolved.
Ukrainian Catholic University
Faculty of Applied Sciences
Data Science Master Program
January 21st
Abstract. Novelty is an inherent part of innovations and discoveries. Such processes may be considered as the appearance of new ideas or as the emergence of atypical connections between existing ones. The importance of such connections hints for investigation of innovations through network or graph representation in the space of ideas. In such representation, a graph node corresponds to the relevant notion (idea), whereas an edge between two nodes means that the corresponding notions have been used in a common context. The question addressed in this research is the possibility to identify the edges between existing concepts where the innovations may emerge. To this end, a well-documented scientific knowledge landscape has been used. Namely, we downloaded 1.2M arXiv.org manuscripts dated starting from April 2007 and until September 2019; and extracted relevant concepts for them using ScienceWISE.info platform. Combining approaches developed in complex networks science and graph embedding the predictability of edges (links) on the scientific knowledge landscape where the innovations may appear is investigated. We argue that the conclusions drawn from this analysis may be used not only to the scientific knowledge analysis but are rather generic and may be applied to any domain that involves creativity within.
Financial crisis: Non-monetary factors influencing Employee performance at ba...AI Publications
Money and credit fluctuations, financial crises, and governmental responses have come into the spotlight as a result of the crisis that lasted from 2014 to 2018. The primary objective of this study was to investigate the non-financial elements that have an effect on employee performance in the Kurdistan region of Iraq in general and in Erbil in particular. In spite of this, the researcher came up with five assumptions about study that needed to be evaluated and quantified in order to assess how well employees performed amid financial crises. It was found that job security had the highest value, which indicates that job security has the most powerful and positive association with employee performance during financial crisis. On the other hand, job enrichment was found to be the least powerful factor that influences and is related to employee performance during financial crisis in the Kurdistan region of Iraq. The researcher used simple regression analysis to measure the developed research hypotheses.6
Non-monetary effects Employee performance during Financial Crises in the Kurd...AI Publications
The crisis of 2014-2018 has focused attention on money and credit fluctuations, financial crises, and policy responses. The main aim of this research was to examine the non-monetary factors affecting employee performance in Kurdistan region of Iraq as general and Erbil as particular. However, the researcher developed five research hypotheses to be tested and measured to evaluate employee performance during financial crises. The researcher implemented simple regression analysis to measure the developed research hypotheses, it was found that the highest value was for job security, this indicates the job security has the most powerful and positive association with employee performance during financial crisis, on the other hand the least powerful was found to be job enrichment that influences and related to employee performance during financial crisis in Kurdistan region of Iraq.
DETERMINANTS OF BANK-SPECIFIC AND MACROECONOMIC FACTORS THAT ARE AFFECTING T...Uni-assignment
DETERMINANTS OF BANK-SPECIFIC AND MACROECONOMIC FACTORS THAT ARE AFFECTING THE PROFITABILITY OF COMMERCIAL BANKS A STUDY ON THE BRIC FROM THE EMERGING MARKET
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS .docxsmile790243
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 1
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 2
Milestone Two
Macroeconomic Focus and Industry Analysis
NOTE: highlighted any change you made. Know which one is revised. Thanks.
Note: See all highlighted on yellow comments and revised it.THANKS.
Macroeconomic Focus and Industry Analysis
Macroeconomic forecast of the monetary school of thought.
From a monetarist perspective, regulation of the flow and circulation of money is important in determining and influencing preferred economic conditions in the United States. Reducing the circulation of money in the economy has many effects on the macroeconomic environment and determines the activities of other stakeholders in the financial market. From a monetarist school of thought, the government has sole responsibility to both country and citizens in ensuring favorable monetary policies are implemented that are akin to the prevailing economic conditions through the control of inflation and prevention of deflation in the country (Fair, 2011).
Reducing the supply of money in the economy has effects on the macro-economic Cory Kanth:
This point is not clear. It needs clarification in terms of better explanation.
environment as earlier mentioned. Reducing money circulation has both short run and a long run effect that shift practices in the economic environment. For instance, consumer spending is affected by the implementation of monetary policies. When the government implements monetary policies that do not favor money circulation, consumer spending capabilities are significantly reduced (Fair, 2011). The reduction in the spending is due to the reduced flow of money in the financial market which limits the funds accessible to consumers in the market. This policy is usually exercised in a bid to control inflation in the market where prices go up due to increased demand catalyzed by the availability of money in the hands of the spenders.
Reducing the growth of money circulation from a monetary perspective is empirical in determining the cost of labor. When there is a circulation of money in the market, individuals can opt for willing unemployment due to the availability of funds through other sources other than the low paying jobs (Gnimassoun & Mignon, 2015). Further analysis on the effect of reducing money circulation is the government stabilizes the prices of labor meaning little choice is left for personnel who may discriminate employment due to reduced wages or low salaries.
Investment spending is a factor directly affected by the increase in interest rates. This is because investors avoid high lending rates due to high interests that are amassed over operational periods. Moreover, increased lending rates affect investment spending since capital and ...
Foundations of Financial Sector Mechanisms and Economic Growth in Emerging Ec...iosrjce
In this paper, we try to uncover the economic foundations of financial sector development and its
impacts on accelerating economic growth in the given context of emerging economies. We theorize and
empirically test a causally-motivated relationship among economic growth and related key financial sector
variables pertinent to this problem. We accomplish this by analyzing a 20 year panel-data constructed for 30
countries falling within the categorization of an ‘emerging economy’. We estimate the appropriate statistical
models along with related diagnostic tests. Finally, we comment on the strengths and weaknesses of our
approach and we try to explicate the economic rationale and justification for our formulation and the evidences
that follow
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
Running head GLOBAL FINANCIAL SYSTEMS .docxjeanettehully
Running head: GLOBAL FINANCIAL SYSTEMS 1
GLOBAL FINANCIAL SYSTEMS 8
Global Financial Systems
The global financial system plays integral roles in facilitating the international flow of financial capital used in trade financing and investments. Through the system, global entities utilize financial institutions such as the central banks to guide the flow of capital. Consequently, they enhance outcomes in the economy. Financial stability is an essential element of any economy that aims at trading and succeeding in international financial markets. Apparently, the systems play crucial roles in globalizing financial capital and operating open economies (Campbell, Coyle & Turner, 2016). A significant event that negatively impacted the global financial system was the crisis between 2007-2008.The phenomenon was characterized by the sub-prime mortgage crisis which adversely affected banks and financial institutions in America and other surrounding countries (Campbell et al., 2016). The resulting outcomes destabilized the economy with banks being forced to reduce mortgage rates and lose in order to recover their money. With such events taking place, it remains prudent to discuss the nature of the global financial system, its influence, regulatory initiatives, impacts and its overall value and ability
.
Nature of the global financial system
The nature of the global financial system is highly integrated and interconnected. After the financial crisis of 2008, countries began uniting and collaborating to spread and address financial risks. By doing so, savings spread evenly across many countries around the globe (Yildirim & Efthyvoulou, 2018). The system’s nature indicates a case of increased financial movement and freedom. Currently, the system allows small economic players to direct their wealth and capital to any country around the globe. The concept of integration is evident where countries unite and facilitate global transactions. Mostly, financial systems in affluent countries ensure that they have regulatory policies which effectively address economic challenges (Yildirim & Efthyvoulou, 2018). Central banks, insurance and security regulators formulate policies which ensure that all countries benefit equally. Intergration is effective in ensuring economic progress and stability in the entire financial system. Through an increased interconnectedness, adverse financial risks are addressed in a timely manner to avoid economic downfalls
.
The diversification of assets in a primary practice in global financial systems. Countries require robust financial systems in order to succeed and progress in their economic ventures. By embracing diversification, entities strive to increase their economies of scope to other nations. The activity is beneficial because it allows organizatio ...
This study examined the influence of the characteristics of the audit committee on Palestinian firms’ value. The research explores precisely the effect on the Audit Committee characteristics’ efficiency, namely, independence, expertise, evaluating the relationship among dependent and independent variables. Secondary data collected from a list of companies were registered in the Palestine Stock Exchange from 2011 to 2018. Individual variables considered are the independence & expertise of the audit committee, whereas the ROA is employed as the dependent variable as an indicator of a firm’s value. The results showed that the Audit Committee’s independence & expertise substantially positive with ROA. The study concluded that the audit committee’s characteristics are enhancing firm performance. The implications of this study’s findings can be used by decisions and policymakers, the firm’s management, and other stockholders’ interests to create reliable ties between agents and the principals.
There is increasing acceptability of emotional intelligence as a major factor in personality assessment and effective human resource management. Emotional intelligence as the ability to build capacity, empathize, co-operate, motivate and develop others cannot be divorced from both effective performance and human resource management systems. The human person is crucial in defining organizational leadership and fortunes in terms of challenges and opportunities and walking across both multinational and bilateral relationships. The growing complexity of the business world requires a great deal of self-confidence, integrity, communication, conflict, and diversity management to keep the global enterprise within the paths of productivity and sustainability. Using the exploratory research design and 255 participants the result of this original study indicates a strong positive correlation between emotional intelligence and effective human resource management. The paper offers suggestions on further studies between emotional intelligence and human capital development and recommends conflict management as an integral part of effective human resource management.
This paper examines the role of loan characteristics in mortgage default probability for different mortgage lenders in the UK. The accuracy of default prediction is tested with two statistical methods, a probit model and linear discriminant analysis, using a unique dataset of defaulted commercial loan portfolios provided by sixty-six financial institutions. Both models establish that the attributes of the underlying real estate asset and the lender are significant factors in determining default probability for commercial mortgages. In addition to traditional risk factors such as loan-to-value and debt servicing coverage ratio lenders and regulators should consider loan characteristics to assess more accurately probabilities of default.
This study examined the impact of financial innovation on money demand in Nigeria, using quarterly time series for the period 2009-2019. The dependent variable was money demand, represented by broad money, while the independent variable was financial innovation represented by modern payment channels such as volume of Automated Teller Machines (ATMs) transactions, volume of Point of Sales (POS) transactions, volume of Internet banking transactions, and volume of Mobile banking transactions. The study employed the ordinary least squares (OLS) regression technique as the estimation method within the cointegration, granger causality, and error correction modeling. The result obtained showed that financial innovation has mixed impact on money demand in Nigeria during the period of analysis. For instance, financial innovation has positive impact on money demand through volume of ATM transactions in the current period, two periods lagged of volume of mobile banking transactions, current period and one period lagged of volume of internet banking transactions, and current period’s volume of Point of Sales (POS) transactions in Nigeria. On the other hand, financial innovation has negative impact on money demand through one period lagged of volume of point of sales in Nigeria. On the stability of the demand for money function, the result of the stability tests based on the CUSUM test and CUSUM of squares test showed that the demand for money function was stable during the evaluation period. The study recommended that monetary policy strategy of the central bank of Nigeria (CBN) should be fine-tuned to ensure it is well suited to deal with the challenges posed by financial innovation by way of proliferation of sophisticated payment channels.
Equity financing is one of the sources of funding available to non-bank financial institutions which is quite prevalent in developed financial markets for small or start-up firms. This study empirically determined the effect of the Equity Financing Scheme on a sustainable increase in productivity of agro-allied small businesses in Nigeria. Data for this study were elicited through the use of a questionnaire structured in a five-point likert scale. The evaluation of the relationship between the dependent and independent variables was performed using the Ordinary Least Square regression technique. The study revealed that the equity financing scheme had a positive and significant effect on the sustainable productivity of agro-allied small businesses in South-South Nigeria. The study recommended that efforts should be made to educate the small business entrepreneurs on the benefits of equity financing as a viable option towards business growth and expansion and that the government through the various intervention agencies should restructure the long-term loan policies to give access to more growth-oriented agro-allied businesses, to increase their presently low capacity to procure heavy-duty technology to increase productivity and achieve food security in Nigeria. Small business owners should take advantage of the membership of cooperative societies and as well maintain good business relationships with suppliers; this will guarantee a continuous supply of needed materials and uninterrupted operations of the business.
This study seeks to evaluate the impact of public borrowing on economic growth in Nigeria using time series data from 1980 to 2018. Specifically, the study seeks to analyze the effect of domestic debt (proxy by Federal Government Bonds-FGB) and external debt (proxy by International Monetary Fund Loan-IMFL) on Nigerian’s Gross Domestic Product (GDP). To achieve this objective, secondary data was collected from the Central Bank of Nigeria Statistical bulleting and the Debt Management Office of Nigeria. A multiple regression model involving the dependent variable (GDP) and the independent variables (FGB and IMFL) was formulated and subjected to econometric analysis. These variables were adjusted with the Jarque-bera test of normality while the correlation result was used to check the possibility of multi-collinearity among the variables. The t-test was used to answer the research questions and test the formulated hypotheses at the 5percent statistical level. Results from the analysis show that a positive relationship exists between IMF Loan and Nigeria’s gross domestic product, while a negative relationship exists between FG Bonds and Nigeria’s gross domestic product, which violates the Keynesian theory of public debt. The study concludes that both domestic and external debt significantly affect economic growth in Nigeria. Therefore, it was recommended that public borrowing should be efficiently used and contracted solely for economic reasons and not for social or political reasons as this will help to avoid accumulation of debt stock over time.
Equity investment financing is an innovative way of financing the real sector which has considerable developmental potential. The study empirically determined the effect of Equity investment financing on sustainable increase in productivity among agro-allied small businesses in South-South Nigeria. The instrument of data collection is the research questions structured in a five-point likert scale. The evaluation of the relationship between the dependent and independent variables was performed using the Ordinary Least Square regression technique. The study revealed that equity investment financing has a positive and significant effect on the sustainable productivity of businesses in Nigeria. The study recommended educating small business entrepreneurs on the benefits of equity financing as a viable option towards business growth and expansion and that the government through the various intervention agencies should restructure the long-term loan policies to give access to more growth-oriented agro-allied businesses, to increase their presently low capacity to procure heavy-duty technology to increase productivity and achieve food security in Nigeria. Small business owners should take advantage of the membership of cooperative societies and as well maintain good business relationships with suppliers; this will guarantee a continuous supply of needed materials and uninterrupted operations of the business.
This paper aims to explore the relationships of the performance of producer responsibility organizations (PROs) for waste oil, waste electrical and electronic equipment (WEEE), and end-of-life vehicles (ELV). The methodology consists in estimating the cointegration equations between the variables of lubricating oil production (SIG), electric and electronic equipment (EEE), and vehicle production (VP) using dynamic ordinary least squares (DOLS). Subsequently, elasticities are got based on estimates for Spain over the period 2007-2019 using quarterly data. The main results were that SIG and EEE were cointegrated variables. The elasticity of the SIG variable up to EEE was positive at 2, 4166. Additionally, the elasticity of the SIG variable up to VP was 2, 4050. However, SIG and VP are not cointegrated variables; subsequently, it was not a stable relationship between these variables. Results suggest it was because EPR was applied in WEEE PRO join with a deposit refund system (DRS); meanwhile, EPR in ELV PRO had been applied without subsidies to purchase cars.
In the process of R&D globalization, due to market demand and preferential policies, many multinational companies choose to invest in R&D in China. With the increase of labor costs in coastal areas and the rapid economic development of the central and western regions, multinational companies have already shifted from coastal areas to central and western regions when choosing R&D regions in China, especially in Shaanxi Province. Therefore, studying the character of R&D investment and operating performance of Multinational Corporation in Shaanxi Province has important practical significance. This article uses the data of the R&D investment of multinational corporation in the joint annual inspection of Shaanxi Province in 2018 as the sample and uses EXCEL software to conduct data analysis to gain an in-depth understanding of the character of R&D and investment of multinational corporation in Shaanxi Province, business characteristics and business performance. And it is concluded that the R&D investment of multinational corporation in Shaanxi Province has a series of characteristics such as concentration of distribution, concentration of enterprise scale, and overall good performance of operating performance.
In Bangladesh, migrant worker’s remittances constitute one of the most significant sources of external finance. This paper investigates the existence of relation between remittance inflow and GDP and the causal link between them in Bangladesh by employing the Granger causality test under a VECM framework. Using time series data over a 38 year period, we found that growth in remittances does lead to economic growth in Bangladesh. In addition to the relationship, this paper also points out some issues that are working as impediments in getting remittance and give some recommendations to overcome those impediments.
In the context of the 4.0 revolution, technology applications, especially cloud computing will have strong impacts on all areas, including accounting systems of enterprises. Cloud computing contributes to helping the enterprise accounting apparatus become compact, help automate the input process, improve the accuracy of the input data. Besides, the issur of accounting, reporting, risk control and information security also became better, contributing to improving the effectiveness of accounting. However, besides the positive impacts, businesses also face many difficulties in deploying and applying cloud computing. However, this application requirement will become an inevitable trend contributing to improving the operational efficiency of enterprises. To promote this process requires from the State as well as businesses themselves must have awareness and appropriate decisions. Breakthroughs in information technology have dramatically changed the accounting industry and the creation of financial statements. The Internet and the technologies that use the power of the Internet are playing an important role in the management and accounting activities of businesses - who always tend to be ready to receive and use public innovations technology in collecting, storing, processing and reporting information.
In recent years, Vietnam has joined international intergration by strong export agreements of bilateral and multilateral; Vietnam’s merchandise export in 1995 was only US $5.4 billion, in 2018 Vietnam’s merchandise export increased by 45 times compared to 1995 with US $244 billion. Vietnam’s imports increased by 29 times in 2018 compared to 1995. This study is an attempt to test a method of estimating the influence of exports on several Supply-sidefactors such as production value, value added and imports through the expansion of the standard system W. Leontief I.O and Miyazawa-style economic-demographic relations. This study also tries to make an experiment in the “Leontief Paradox”.The result is that Vietnam’s export value spread to production and imports but spread low to added value, especially in the processing industry group’s fabrication. The study is based on the non-competitive I.O table in 2012 and 2018 with 16 sectors.
The profitability of commercial banks is influenced by a number of internal and external factors. This paper attempts to identify the internal factors which significantly influence the profitability of commercial banks in Bangladesh. In this study, profitability is measured by ROA and ROE which may be significantly influenced by the internal factors such as IRS, NIM, CAR, CR, DG, LD, CTI and SIZE of the bank. Data are collected from published annual reports during 2014--2018 of 23 commercial banks. Using simple regression model, it is found that CR has significant effect on the profitability and CAR has significant influence on ROA only. In addition to this, DG has significant effects on PCBs’ profitability (ROE only) where as IRS and CTI have significant influence on profitability (ROA only) of ICBs. Further, none of these variables have significant effects on the profitability of SCBs but CAR and CR are correlated with profitability (ROA only) and the causes may be the nature of services provided by SCBs to its clients. The internal policy makers should manage the influential internal factors of the banks in order to increase their profitability so that they can meet stakeholders’ expectations.
Using a series of econometric techniques, the study analysed interaction between monetary policy and private sector credit in Ghana. This study made use of monthly dataset spanning January 1999 to December 2019 of credit to the private sector (PSC) and broad money supply (M2). The results reveal that there exists cointegration, a long run stationary relation between monetary policy and private sector credit. This implies, increases in credit should prompt long-term increases in monetary policy. It is not surprising that growth in the private sector might have a stronger effect on monetary policy. The Error Correction Test is statistically significant and that all the variables demonstrate similar adjustment speeds. This implies that in the short run, both money supply and credit are somewhat equally responsive to their last period’s equilibrium error. There is unidirectional causation from private sector credit to monetary policy. It can be said that, there is an interaction between money supply and private sector credit. Thus, credit to private sector holds great potential in promoting economic growth. It can be recommended to the government to increase the credit flow to the private sector because of its strategic importance in creating and generating growth of the economy.
This paper investigates if forecasting models based on Machine Learning (ML) Algorithms are capable to predict intraday prices in the small, frontier stock market of Romania. The results show that this is indeed the case. Moreover, the prediction accuracy of the various models improves as the forecasting horizon increases. Overall, ML forecasting models are superior to the passive buy and hold strategy, as well as to a naïve strategy that always predicts the last known price action will continue. However, we also show that this superior predictive ability cannot be converted into “abnormal”, economically significant profits after considering transaction costs. This implies that intraday stock prices incorporate information within the accepted bounds of weak-form market efficiency, and cannot be “timed” even by sophisticated investors equipped with state of the art ML prediction models.
Applying the Arrow-Debreu-Mundell-Fleming model as an economic standard model, with combining axiological framework and epistemological model, it is proposed to analyze economic policies with using a synthetic model, where interest, exchange and tax rates are integrated together. Except normal monetary and fiscal policies mainly via interest and tax rates, there are feasible ways to utilize modified strategies via exchange and tax rates. When ones need to simulate national local market, ones can raise the exchange rate. Otherwise, when ones need to promote international global trade, ones may lower the exchange rate. It is found that tax reduction is good policy when tax rate is higher than normal and that tax increase is good social policy when tax rate is lower than normal, during economic depression. Also it is revealed that tax reduction is good social policy when tax rate is lower than normal, and that tax increase is good policy when tax rate is higher than normal, during economic overheat. While economic system seeks efficiency and social system pursues equality, common interest modifications with elastic exchange and tax rates could be applied for balancing efficiency and equality.
In recent times, agricultural sector has returned to the forefront of development issues in Nigeria given its contribution to employment creation, sustainable food supply and provision of raw materials to other sectors of the economy. In lieu of that, this study examines the impact of agriculture on the economic growth in Nigeria using annual time series data covering the sample period of 1981 to 2018. To analyse the data collected, Autoregression Distributed Lag (ARDL) model through the bounds testing framework is employed to measure the presence of cointegrating relations between real GDP, agricultural productivity, labour force, and agricultural export. Results show the presence of both short-run and long-run relationship among the variables, and that agriculture has a positive and significant impact on economic growth in Nigeria. These findings inform the Nigerian government on the need to expedite labour force (human capital) and agricultural export (non-oil) development with the view to achieving sustainable growth and development. In addition, developing skills and competencies of labour force through capacity building in the agricultural sector will encourage research and development thereby increase the export size, hence essential for long-term growth.
The article illustrates the results of the economic development of the first fifteen years of the XXI century under the conditions of unprecedented economic freedom, globalization and the appearance of new informational sectors up to and including the first attempts at revising liberalism. The analysis of statistical data demonstrates an obvious increase in the percentage of well-off people in many countries as well as the increased economic capabilities of small, medium and large businesses, whose assets are distributed among an ever-increasing number of owners. This provides the impetus to review our collective approach to liberalization and globalization, as well as to view its unexpected strong sides that make human progress possible.
This paper investigates the relationship between working capital management and financial performance of Pharmaceuticals and Textile firms listed at the Dhaka Securities Exchange in Bangladesh. The data analysis was carried on ten Pharmaceuticals and Textile firms for a period of 2013 to 2017. Secondary Data was analyzed by applying Descriptive Statistics, Regression and Correlation analysis to findthe relationship of current ratio, inventory conversion period and average payment period with Return on Asset. The findings indicate that the Pharmaceuticals and Textile firms’ performance is influenced by the variables relating to working capital. There is a positive relationship between profitability and current ratioand Inventory Turnover period shows a negative relationship with profitability but Average payment period shows insignificant impact on profitability. The study concludes that there exists a relationship between working capital managementand financial performance of Pharmaceuticals and Textile firms in Bangladesh. The study recommends that for the Pharmaceuticals and Textile firms to remain profitable, they should employ working capital management practice that will help in making decisions about investment mix and policy, matching investment to objective, asset allocation for institution and balancing risk against profitability.
Organizational behaviour involves the design of work as well as the psychological, emotional and interpersonal behavioural dynamics that influence organizational performance. Management as a discipline concerned with the study of overseeing activities and supervising people to perform specific tasks is crucial in organizational behaviour and corporate effectiveness. Management emphasizes the design, implementation and arrangement of various administrative and organizational systems for corporate effectiveness. While the individuals, and groups bring their skills, knowledge, values, motives, and attitudes into the organization, and thereby influencing it, the organization, on the other hand, modifies or restructures the individuals and groups through its structure, culture, policies, politics, power, and procedures, and the roles expected to be played by the people in the organization. This study conducted through the exploratory research design involved 125 participants, and result showed strong positive relationship between the variables of interest. The study was never exhaustive due to limitations in terms of time and current relevant literature, therefore, further study could examine the relationship between personality characteristics and performance in the public sector, where productivity is not outstanding, when compared with the private sector. Based on the result of this investigation it was recommended that organizations should provide emotional intelligence programmes for their membership as an important pattern of increasing co-operative behaviours and corporate effectiveness.
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Financial Liberalization and Money Demand in CEMAC: Evidence from GMM Estimations of a Dynamic Panel
1. International Journal of Economics and Financial Research
ISSN(e): 2411-9407, ISSN(p): 2413-8533
Vol. 4, Issue. 8, pp: 250-257, 2018
URL: http://arpgweb.com/?ic=journal&journal=5&info=aims
Academic Research Publishing
Group
250
Original Research Open Access
Financial Liberalization and Money Demand in CEMAC: Evidence from GMM
Estimations of a Dynamic Panel
Prao Yao Séraphin
Professor-Researcher at Alassane Ouattara University (Bouaké), Member of Laboratory of Analysis and Modeling of Economic Policies, B P V18
01, Bouaké, Ivory Coast
Abstract
The objective of this paper is to examine the impact of financial market development and liberalization on money
demand behavior in Central African Economic and Monetary Community (CEMAC). We adopt the generalized
method of moments (GMM) system for panel data. The empirical results indicate that financial liberalization has a
negative impact on money demand. Moreover, real GDP and the GDP deflator affect it positively, while the main
policy rate has a negative impact. In terms of economic policy involvement, monetary authorities must pursue
reforms aimed at deepening financial liberalization measures so that banks actively participate in the financing of
CEMAC economies.
Keywords: Financial liberalization; Money demand; Monetary policy.
JEL Classification: D92, E21, E51, E52.
CC BY: Creative Commons Attribution License 4.0
1. Introduction
Since independence, the development financing policies of African countries were defined within a Keynesian-
inspired theoretical framework. Interest rates were capped at a very low level to encourage investment and
economic growth. The state thus controlled the entire financial system and managed its economic development
strategy. The results of these policies have led to low or even negative real interest rates. McKinnon (1973) and
Shaw (1973) attribute financial repression as the main cause of poor economic growth performance in developing
countries. According to the authors, financial repression hinders economic development in several ways. First,
savings are discouraged because their return is low. Second, financial intermediaries are not encouraged to allocate
savings effectively. Logically, by adopting a policy of financial liberalization, economic growth is encouraged
because higher interest rates will facilitate the mobilization of savings and a more efficient distribution of capital.
States must therefore abolish interest rate ceilings, reduce reserve requirements and abolish directed credit
programmes. The idea is to "free" financial markets from intervention and let the market determine the allocation of
credit.
Under the aegis of major international institutions, the majority of sub-Saharan economies began financial
liberalization programmes in the mid-1980s. In addition to interest rate liberalisation, many other measures have
been implemented in Africa as part of financial reforms (bank restructuring, abolition of direct monetary control,
strengthening supervision). However, neo-liberal policies inspired by monetarism have not provided a miracle
solution to economic development. Reinhart and Tokatlidis (2003), referring to sub-Saharan Africa, argue that
financial reforms have had very little effect on economies. The main reason for this failure is the existence of
imperfect and incomplete markets, information asymmetries and an unstable economic environment that is not
conducive to the private sector.
In the Central African Economic and Monetary Community (CEMAC), financial liberalization was adopted in
the 1990s as an antidote to the financial crisis that was plaguing the region. Indeed, the end of the 1980s in most
CEMAC countries was marked by a serious crisis in the banking sector which led to the liquidation of several credit
institutions (Tamba and Tchamanbe, 1995). This crisis is said to be the result of a depressed economic situation due
to the fall in the prices of exported commodities on which the economies of the countries of the subregion were
based, the predominant role played by the State as majority shareholder in most banks (Sandretto and Tiani, 1993),
the inefficiency of the existing supervisory system and poor management of banking institutions (Mathis, 1992;
Nembot, 1997). To remedy this situation, the monetary authorities of the subregion, under the leadership of the
International Monetary Fund (IMF) and the World Bank, have undertaken a structural reform comprising essentially
two components, one monetary, and the other banking and institutional. This orientation was the expected result of
several years of strict control by the public authorities over financial operations but also, as a response to the rise in
power of a current of thinking in favour of financial liberalisation led by the pioneering work of McKinnon and
Shaw in the early 1970s, which denounced the perverse effects of financial repression.
Thus, while financial liberalization generally aims to promote the optimal allocation of savings to investment in
developing countries, its influence on money demand in CEMAC remains to be demonstrated. Indeed, in the light of
the comparative evolution of resources collected and loans granted over the last two decades in CEMAC, one has the
impression that banks are increasingly reluctant to finance investments. Their preference is more oriented towards
treasury jobs and, the offer of services to customers is relegated to second place. According to the annual report of
2. International Journal of Economics and Financial Research
251
the Banque de France on the countries of the franc zone Banque de France (2015), the share of credit to the economy
in GDP which explains the financial depth, amounts to 18.6% in 2015 in CEMAC against 29.2% in the West African
Economic and Monetary Union (WAEMU) and 29% in the rest of sub-Saharan Africa. According to World Bank
statistics (2017), money supply amounts to 27.02% of GDP in 2015, a level below the optimal threshold for
stimulating 36.5% growth (King and Levine, 1993). CEMAC's bancarisation rate is around 10% against 12.6% in
UEMOA and 29% in the rest of sub-Saharan Africa (Banque de France report on franc zone countries, (Banque de
France, 2015). According to data from the Bank of Central African States (Banque des Etats de l Afrique Centrale,
2016), the contribution of net domestic credit to money supply growth, in percentage terms, rose from 15.1 % in
1998 to -8.8 % in 2000 and 0.4 % in 2002, then -15.32 % in 2004, to -18.0 % in 2007 and -15.8 % in 2010. The
annual percentage change in credit to the economy rose from 14% in 1998 to -1.9 in 2004, to 14.7 in 2007 and 8% in
2010. There has also been a fall in the tender interest rate (TIAO) from a high 12% in 1992 to a very low 2.5% in
2015. From the above, this study examines the influence of financial liberalization on money demand in CEMAC. In
other words, has financial liberalization had an effect on money demand in CEMAC? In the alternative, this study
attempts to provide answers to the following questions:
- What influence does the interest rate have on money demand in CEMAC?
- What is the effect of financial liberalization on money demand in CEMAC?
The general objective of this study is to analyse the influence of financial liberalisation on money demand in the
CEMAC zone. We break this general objective down into two specific objectives :
- Specific objective 1: Assess the effect of the interest rate on money demand in CEMAC
- Specific objective 2: To determine the effect of bank credit to the private sector on money demand in the
CEMAC zone.
In harmony with the objectives of the study, we postulate the following hypotheses:
- Hypothesis 1 : The interest rate has a negative impact on money demand in CEMAC
- Hypothesis 2: Liberalisation has a negative impact on money demand in CEMAC through bank credit to the
private sector.
This study is not lacking in interest for the political, monetary and economic authorities of the CEMAC zone.
Indeed, the search for an empirical relationship between financial liberalization and money demand will allow
monetary authorities to refine and conduct monetary policy well. Moreover, it enables economic agents in the
subregion to better understand the impact of financial liberalization on their purchasing power in order to make a
sound decision for the management of their wealth.
At the methodological level, the study adopts the generalized method of moments (GMM) in system. One of the
many advantages of GMMs is that it is a comprehensive method for finding a large number of common estimators as
special cases, including ordinary least squares, instrumental variables and least square doubles, non-linear least
squares and maximum likelihood. In practice, when the explanatory and dependent variables are highly persistent,
Blundell and Bond (2000) show that the instruments used for the GMM difference estimator are weak and that this
estimator is not relevant. The existence of a significant potential bias in the estimation of GMM differences in this
work has thus led us to favour the GMM system estimator. Indeed, many of the results in the empirical literature
reveal that the GMM system estimator significantly improves accuracy gains, and significantly reduces sampling
bias relative to the GMM difference estimator when regressors are weakly exogenous and correlated with individual
effect. Under these conditions, Blundell and Bond (2000) show that the GMM estimator is more appropriate. To
best address the concerns raised, this article is organized as follows: Section 2 reviews the literature on the
relationship between financial liberalization and money demand. Section 3 will present the study methodology, data
source and description of variables. Section 4 will discuss empirical results, particularly the econometric analysis of
the relationship between financial liberalization and money demand. Section 5 is reserved for the conclusion of the
study.
2. Literature Review
This section revisits the theoretical and empirical literature on the link between the effects of financial
liberalization and the empirical review of the relationship between financial liberalization and money demand.
2.1. Review of Theoretical Literature on the Impact of Financial Liberalization
Financial repression" forces banks to charge low and sometimes negative interest rates (McKinnon, 1973). It
discourages savings and hinders the accumulation of productive capital. McKinnon and Shaw's analysis aims to
show that, in a financially repressed economy, setting rates below their equilibrium value reduces savings (lower
bank deposits) in favour of current consumption. Such a measure reduces the amount of funds available for
investment, as a consequence of the fall in bank deposits and the rise in demand for money. It ensures better resource
mobilization and increased investment. Thus, it allows income growth and economic development. For financial
liberalization theorists, underdeveloped countries suffer less from a lack of financial resources than from bank
intermediation that has become inefficient due to distortions in interest rate administration. Shaw (1973) model is
based on a financial system of debt intermediation. It is a model in which investors are not forced to self-finance but
financial intermediaries fully play their role of transforming savings into investment.
McKinnon and Shaw's original models have been taken up and enriched by a large number of authors (Fry,
1978; Galbis, 1977; Kapur, 1976; Mathieson, 1979). McKinnon/Shaw's approach has been challenged by post
Keynesians and neo-structuralists. The approach to interest rate liberalization has neglected many of the most
characteristic foundations of developing economies. The first is highlighted by postkeynesians (Burkett and Dutt,
3. International Journal of Economics and Financial Research
252
1991). According to these authors, increases in interest rates do not necessarily lead to increases in credit and
investment. Indeed, in accordance with Keynesian concepts, consider that investment does not depend on the amount
of deposits but rather on the probable anticipated demand. Thus, an increase in the interest rate would certainly
induce an increase in savings, but also a relaxation of consumption since the substitution effect outweighs the
income effect. In other words, if the return on savings is high enough, it encourages households to defer part of their
consumption in favour of an increase in their savings. Thus, according to post Keynesians, the liberalization of
interest rates leads to the economic slowdown following the decline in investment induced by the decline in
aggregate demand. In addition, higher interest rates as a result of financial liberalization will increase the cost of
credit (Davidson, 1986). The second is related to information asymmetries in financial markets (Stiglitz and Weiss,
1981). For these two authors, the McKinnon/Shaw approach does not take into account market imperfections. In this
critique, they will pay particular attention to the microeconomic foundations of macroeconomic policies. The authors
will show that the imbalances on the credit market do not come from State intervention alone but from adverse
selection and incentive effects. They consider that, in a context of information asymmetry, it is difficult for interest
rate liberalisation to operate effectively through a better allocation of resources and the drainage of savings to the
most productive sectors. The third foundation is related to the existence of the informal sector (Taylor, 1983;
Winjbergen, 1983). This criticism takes into account the existence of informal financial markets and their greater
effectiveness in terms of resource allocation. Rising interest rates in the formal sector lead to higher interest rates in
the informal sector, which leads to higher investment credit prices and consequently higher general price levels (cost
inflation), lower real demand and also lower investment (Winjbergen, 1983).
2.2. An Empirical Literature Review of the Relationship between Financial Liberalization
and Money Demand
Dekle and Pradhan (1999) study the relationship between financial liberalization and money demand for
ASEAN-4 countries (Indonesia, Malaysia, Singapore and Thailand). One of the objectives is to evaluate if the
equations are cointegrated. Despite the substantial financial liberalization that has taken place in these countries,
these authors find that the money demand equations are cointegrated. Based on the fact that money demand has
remained stable despite financial liberalization, they believe that if monetary authorities know the shape of these
money-demand equations, then a monetary policy framework based on monetary targets can be implemented.
Using annual time series data from 1971 to 2009, Rana and Qazi (2011) analyzed the effect of financial
liberalization on money demand in Pakistan. These authors conclude that financial liberalization has had a positive
impact on money demand in Pakistan in the short and long term with cost coefficients higher than those in the long
term. In the same country, the study by Naddem et al. (2016) on credit supply in Pakistan revealed a harmful effect
of rising interest rates on credit to the private sector in the short term and also in the long term.
In Africa, empirical studies are not lacking. In a study on money demand in African franc zone countries, Ondo
(2002) analysed the relationship between money demand and income on the one hand, and between money demand
and the interest rate on the other. The results of this study show that income (real GDP) and the GDP deflator
positively affect money demand ( ) in African Franc zone countries, with interest rates only significant
with M1 and negatively affecting it. It concludes that, due to the non-neutrality of money, the BEAC and the
BCEAO must use the money supply (in the strict or broad sense) as a transmission channel for monetary policy
while permanently preserving price stability over the medium term.
For Senegal, Samb (2005) indicates that financial liberalization has negatively impacted bank credit by
increasing restrictions on bank credit supply. It concludes that, when macroeconomic conditions in the country are
taken into account, it appears that financial liberalization has led to an increase in the degree of credit restriction due
to the negative indirect impact of the Senegalese banking system. According to him, this suggests that banks have
not implemented financial liberalization measures.
3. Strategy of Empirical Research and Data Description
In this section, we present the model specification and research methodology.
3.1. Model Specification
To assess the influence of financial liberalization on money demand in CEMAC, this study draws on the work
of Ondo (2002). The demand for money function retained by the author is specified as follows:
(1)
With : The GDP price deflator ; The real GDP ; , The nominal interest rate and t , The error term.
The logarithmic transformation of (1) gives :
ttttt iYPKM ln)1ln(lnlnlnln (2)
Assuming that is an approximation of , equation (2) becomes :
ttttt erypkm ln (3)
4. International Journal of Economics and Financial Research
253
tt
tt
tt
e
pp
Kk
Mmavec
ln
;ln
;ln
;ln:
Specified in panel, the composite error model of equation (3) is written :
(4)
Where itiit ke et 0),( itikE
Equation (1) is the study model, equation (2) is the logarithmic transformation of equation (1), equation (3) is
the transformation of equation and finally equation (4) is the compound error model of the study. The residue in the
model (4) includes a specific effect term ki, characteristic of any country. This term is random and reflects the
country-specific disruption in money demand. Thus, the specification of the model we use to assess the impact of
financial liberalization on money demand is as follows:
(5)
Where :
: The GDP price deflator ;
: The real GDP ;
: Bank credit to the private sector.
: Central bank interest rate;
: The real cash balances ;
t : The error term.
As mentioned above, the broad money supply (M2) is chosen as the explained variable. This aggregate is
closely monitored by the BEAC as an indicator of monetary policy, which justifies its inclusion in this study. As
regards the explanatory variables, the following are retained. Bank credit to the private sector, real GDP, GDP
deflator and tender interest rate (TIAO). As regards bank lending to the private sector, its level defines the
development of the banking sector and is closely monitored by the BEAC. This variable is used to reflect financial
liberalization in this study. In the absence of a well-developed financial market in developing countries, bank credit
is generally the most powerful transmission channel for monetary policy. Economic activity is constrained by its
available quantity. All other things being equal, the demand for money falls with an increase in bank credit. For real
GDP, the choice of this variable derives from economic theories linking money demand to a transactional variable.
Real GDP is used in this study as a proxy for real income to capture wealth in the sub-region. As far as the GDP
deflator is concerned, it derives from taking into account the purchasing power of individuals. Indeed, in developing
countries, in the absence of viable financial markets where agents can have investments in alternative financial
assets, the acquisition of real assets often appears as a means of protecting against inflation. From this perspective,
there is a negative relationship between the inflation rate and money balances. It is justified in the sense that inflation
persistence can lead agents to get rid of money in order to acquire durable physical goods. The problem can also be
observed in the opposite direction. In the presence of a generalized increase in prices, agents must increase their
monetary balances to cover their usual transaction expenses. The choice of the interest rate as an explanatory
variable is consistent with McKinnon and Shaw's prescriptions that capping the interest rate at low levels reduces
savings, reducing banks' potential to attract capital and thus limiting the implementation of investment projects. Like
Mounkala (2013), we will use the BEAC's policy rate (TIAO). This choice corresponds to the principle according to
which the level of the Central bank rate has a fundamental influence on the evolution of the money supply. It serves
as the basis for setting the interest rates charged by banks to their customers.
3.2. The Panel Estimation and Stationnarity Test
Panel data econometrics take into account both individual and temporal data, which allows a better
understanding of the various factors likely to explain money demand and to take into account individual specificities.
We will therefore use a panel model and more precisely a dynamic panel to which we will apply the generalized
moments method (GMM). A dynamic model is a model in which one or more delays of dependent or independent
variables are listed as explanatory variables. Unlike dynamic panel GMMs, standard econometric techniques such as
OLSs do not provide robust estimates because of the presence of the lagged dependent variable in the explanatory
variables. This leads to biased estimates. The GMM method is then used to control for individual and temporal
specific effects, and to compensate for endogeneity biases of the variables. The GMM dynamic panel estimator was
developed by Holtz-Eakin et al. (1988), Arellano M. and Bond (1991), and Arellano M. B., O. (1995). There are
two types of generalized moment estimators the Arellano M. and Bond (1991) or GMM difference estimator and the
Blundell and Bond (1998) or GMM system estimator. Arellano M. and Bond (1991) propose a difference estimate
aimed at eliminating a possible bias in the variables. The first differences of the explanatory variables of the model
are instrumented by the delayed values in level of these same variables. The goal is to reduce simultaneity bias.
Blundell and Bond (1998) showed using Monte Carlo simulations that the system GMM estimator is more efficient
than the difference GMM estimator. The latter produces biased estimators for small samples. The GMM method is
based on the orthogonality conditions between the delayed variables and the error term, both in first difference and
5. International Journal of Economics and Financial Research
254
in level. When the dynamic model is expressed as the first difference, the instruments are in level, and vice versa. In
the model to be estimated, the current values of the explanatory variables are used as instruments and for the
endogenous variable, its period lagged value is used as instruments. The validity of the selected instruments can be
confirmed or invalidated, based on Hansen and Sargan tests. As for the choice between the GMM method in
difference and GMM in level, the second will be taken into account because of its efficiency.
But first, in order to have a good specification of the model, we will look at the questions of variable stationarity
by performing unit root tests, then we will perform an autocorrelation test of the residues since the generalized
moments method assumes the absence of autocorrelation of the residues. The results obtained will indicate whether
further testing is needed to clarify the meaning of the relationship we are seeking to study.
3.3. Data and Descriptive Statistics
In this sub-section, we first present the source of the data and second, the different statistical characteristics of
our study variables. Our study will be based on a panel of six countries over the period 1981 to 2015 and the choice
of this period is related to the availability of data. Moreover, this choice is justified by the concern to integrate the
various developments that financial liberalisation and money demand policy has undergone into CEMAC. The data
collected are from secondary sources, coming from the annual publication of the World Bank, more precisely in the
"book of world development indicators" contained in the CD-ROM (WDI-2017) for the four explanatory variables
and, from the report of the Bank of France on the countries of the Franc zone from 1990 to 2015 for the TIAO.
Table 1 below provides a statistical description of the variables used in our study. Money supply (M2), gross
domestic product (GDI) and bank credit to the private sector (PRCRED) are expressed in billions of CFA francs,
while the GDP deflator (GDPDEFL) and TIAO are expressed in annual growth.
Table-1. Descriptive statistics of the variables
Variables Moyenne Ecart-Type Min Min
M2 598 736 32 3770
RGDP 2950 7360 505 11800
GDPDEFL 4.89 11.68 -29.69 47.04
PRCRED 364 454 22 1930
TIAO 7.10 2.46 2.5 12
Source : Constructed by the author from estimates
This table calls for some comments. We observe that, on average, the money supply in CEMAC amounts to 598
billion FCFA. During the study period, the lowest money supply (32 billion) was recorded in 1981 by Chad and the
highest (3770 billion) by Cameroon in 2015. Cameroon is the country with the highest value of real GDP in the sub-
region (11800 billion) in 2015 and the lowest value is recorded by the Central African Republic (505 billion) in
1983. Regarding the volume of credit distributed in CEMAC, the average is 364 billion, its maximum value (1930
billion) and its minimum value (22 billion) are respectively recorded by Cameroon in 2015 and the Central African
Republic in 1994. For the TIAO, it has the same level for all CEMAC States. Its highest level is recorded in 1992
(12%) in the sub-region and its lowest level (2.5%) is recorded in 2015. Finally, on average, the GDP deflator is
4.89%. Gabon is the only country in the sub-region that recorded the highest rate (11.68%) and the lowest (-29.69) in
2000 and 2015.
4. Results of Empirical Research
In this section, we first present the results of the stationarity tests, then the results of the estimates and finally the
economic interpretation of the econometric results.
4.1. Stationarity Test Results
There are several tests on panel data to evaluate the stationarity of the variables. The recently developed tests are
Breitung (2000), Hadri (2000), Levin et al. (2002) and Im et al. (2003). In this study, we retain those of Levin et
al. (2002) and Im et al. (2003). The results are summarized in the table below.
Table-2. Results of the unit root tests
Variable LCC IPS Décision
Coef P-value coef P-value
Ln(M2) -2.93*** 0.0017 -7.40 *** 0 I(0)
Ln(RGDP) -2.00** 0.0224 -7.20*** 0 I(0)
Ln(GDPDEFL) -4.54*** 0 -6.94 *** 0 I(0)
Ln(PRCRED) -7.70*** 0.0001 -6.23*** 0 I(0)
Ln(TIAO) -1.73** 0.0417 -2.01** 0.0221 I(0)
Source : Constructed by the Author from estimates
Note: *** significance at 1%; ** significance at 5%; and * significance at 10%. Stationarity test
results show that all variables in the study are stationary at level. We are therefore moving to the
application of the GMM method in a system.
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4.2. The Results of the Model Estimation by the GMM
The results obtained will be read at a significance level of 5%. The decision rule is as follows: if the probability
is less than 5%, then we conclude that the coefficient of our variable is significant. The results are shown in Table 3.
The results obtained show that the variables used to explain money demand in CEMAC have all the expected and all
the significant signs at the 5% threshold except for the variable bank credit granted to the private sector, which is
significant at the 10% threshold. The increase in bank lending to the private sector is negatively associated with
money demand. Two explanations can be put forward. The first is that poor credit quality (credit default) can have
negative effects on the money supply in CEMAC. The second is that according to McKinnon's thesis, the more
economic agents have access to bank credit, the less they need to demand money in the form of self-financing. For
lagged M2, real GDP and the real GDP deflator, these variables have a positive impact on money demand. The
interest rate is negatively associated with money demand because an increase in interest rates discourages the
holding of money in favour of financial investments. As for the validity of the instruments, Sargan's
overidentification test confirms the validity of the model because its probability obtained which is 0.2378 is lower
than Chi2 (122.2378). Our instruments are valid since we cannot reject the null hypothesis.
Table-3. The GMM estimator in system
Variables Coefficients P-values
Ln (M2-1) 0.86990*** 0.000
Ln(RGDP) 0.19811*** 0.000
Ln(GDPDEFL) 0.02746*** 0.001
Ln(PRCRED) -0.04187 0.095
Ln(TIAO) -0.23932*** 0.000
Significativité globale du modèle Wald chi2(5) = 4656.65 Prob > chi2 = 0.0000
Test Sargan Chi2 (112) = 122.2378 Prob > Chi2 = 0.2378
Test AR1 Z = -2.63 Pr > Z = 0.009
Test AR2 Z = -0.83 Pr > Z = 0.409
Nombre d’observation = 122 Nombre des variables = (5)
Source : Constructed by the Author from estimates
Note : *** significance at 1% and ** significance at 5%.
4.3. Economic Interpretations of the Results of the Estimates
Econometric results require economic interprétations. First, the relationship between money demand, its delayed
value and price developments. The results show a positive effect of the lagged money supply and GDP deflator on
money demand. A 1% increase in the lagged value of the money supply and that of the GDP deflator leads to an
increase of 0.9% and 0.03% respectively in money demand in the CEMAC. The positive effect of the delayed
money supply could be explained by a habit effect, an inertia effect on money demand behaviour. As far as prices
are concerned, the more they rise, the greater the demand for money. An increase in prices leads economic agents to
increase their monetary balances in order to maintain their purchasing power constant. This result is in line with that
of Ondo (2002) in the African Franc Zone but contrary to that of Mounkala (2013) in the CEMAC zone. As a result,
in the CEMAC zone, there is a situation of absence of monetary illusion. Second, the relationship between money
demand and real GDP. The result of the estimates indicates that a 1% increase in real GDP leads to a 2% increase in
demand for cash balances by CEMAC economic agents. This means that the higher the income, the more economic
agents want to hold money for precautionary and trading reasons. Indeed, most transactions in CEMAC are directly
linked to real economic activities and transactions in value generally concern the purchase of goods and services and
not that of financial assets, which rules out any assumptions of currency neutrality in this geographical area. This
result is consistent with those of Mounkala (2013) and Ondo (2002). Third, the relationship between money demand
and bank credit to the private sector and the BEAC policy rate. At the 10% threshold, bank credit to the private
sector has a negative effect on money demand in CEMAC. Consequently, given that it is the variable characterizing
financial liberalization in this study, we infer that financial liberalization has an influence on money demand in
CEMAC. As regards the relationship between the BEAC policy rate and money demand, a 1% increase in the
Central bank rate leads economic agents to reduce their cash demand by 0.23%. This explains why, the higher the
BEAC's policy rate increases, the more second-tier banks increase their lending and deposit interest rates and, the
less economic agents demand money because they will invest their savings in order to benefit from the high returns
on bank savings. Indeed, the BEAC's policy rate serves as the basis for setting the interest rates charged by banks to
their customers, the remuneration of deposits and that of loans. Thus, the increase in the policy rate slows monetary
demand, which validates McKinnon's assumption in CEMAC. The first hypothesis of the study is therefore verified.
5. Concluding Remarks
The objective of this study was to analyse the effects of financial liberalisation on money demand in the
CEMAC area over the period 1981-2015. We used a panel model and more specifically a dynamic panel to which
we apply the generalized method of moments (GMM) in system. The main results obtained from this study lead to
major lessons. The first is that we are seeing a strong inertia in the adjustment of real money demand. Our results are
similar to those obtained by Dreger and Wolers (2009).
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The second concerns neutrality, the study does not provide a clear conclusion. It was found that an increase in
prices led economic agents to increase their monetary balances in order to maintain their purchasing power constant.
As a result, in the CEMAC zone, there is a situation of absence of monetary illusion. However, the absence of
monetary illusion demonstrates the neutrality of money: a change in the quantity of money causes a proportional
change in all monetary prices and leaves the purchasing power of money unchanged; agents therefore do not change
their offert and demands for goods and services. But at the same time, the results indicate that an increase in real
GDP leads to an increase in demand for cash balances by CEMAC economic agents. This suggests a relationship
between money demand and real activity.
The third lesson is that financial liberalization has affected money demand in the CEMAC zone. Indeed, the
BEAC's main policy rate and the bank credit granted to the private sector affect money demand in accordance with
McKinnon (1973) prescriptions. In terms of economic policy implications, the BEAC could use its main policy rate
to revive an economy that is constantly exposed to the deterioration of the main economic aggregates due in
particular to the fall in oil prices. Indeed, the reduction in the central bank rate should be translated at the level of
each State by a fall in commercial banks' interest rates and by an increase in loans granted for the benefit of the real
economy.
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