Assessing the asymmetric implications of the common monetary area on the stability of the Namibian money demand function
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Date
2023
Authors
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Publisher
University of Namibia
Abstract
The anecdote of this study is broadly focused on assessing the asymmetric
implications of the Common Monetary Area (CMA) on the stability of the Namibian
money demand function (MDF) using a nonlinear autoregressive distributed lag
(NARDL) model covering the period 2001q1 to 2021q3. It is provoked by long extant
literature’s recognition that MDF stability is a prerequisite for effective and successful
monetary policy implementation. Surprisingly antecedent global and Namibian research
results have remained broadly divergent, with the adoption of appropriate models,
particularly nonlinear models found to be sparse. A local study that investigated the
nonlinear drivers of money demand failed to ascertain the stability of the Namibian MDF,
hence, the present research seeks establish the asymmetric impact of the CMA on the
Namibian MDF, and ascertain the stability of the function. The results reveal the existence
of a long-run relationship between money demand and the South African repo rate
(SA_repo), income, three-month TB rate, inflation rate, exchange rate and deposit rate. It
has been further found that long-run asymmetric impacts of most variables on the
Namibian MDF are incomplete. Focusing on the main thrust of the study, positive shocks
in the SA_repo, a CMA proxy, have a significant asymmetric influence on MDF in the
long-run. Short-run results of the model are corroborated by a negative and statistically
significant error correction term indicating that 23% of short-run deviations are corrected
in each quarter over the sample period. The study further show that the short-run effects
of most regressors are asymmetric and that the Namibian MDF is stable. The asymmetric
dynamic multiplier effects of the SA_repo on the Namibian MDF reveals that positive
shocks in the variable dominate their negative counterparts with the impact more
pronounced in the long-run. Therefore, as an antidote, in its monetary policy
implementation, the Bank of Namibia should vigorously observe upward adjustments in
the SA_repo.
Description
A thesis submitted in partial fulfilment of the requirements for the degree of master of science in economics
Keywords
Money demand function stability, Namibia, Asymmetry, Nonlinear Autoregressive Distributed Lag Model, Common Monetary Area