The Demand for Money in Sub-Saharan Africa: Evidence from Sierra Leone

Kelfala M. Kallon
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Kelfala M. Kallon: Gettyburg College

Journal of African Development, 1992, vol. 1, issue 2, 59-76

Abstract: This paper examines the demand for money in Sierra Leone. Alternative hypotheses about the short-term adjustment process were tested, and the empirical evidence was inconclusive. In terms of the magnitude and level of significance of the estimated coefficients, the evidence seems to support the real adjustment hypothesis. On the other hand, when ex-post forecasting ability is the model-selection criterion, the nominal adjustment hypotheses has a slight edge over its real adjustment counterpart. Additionally, the long-run income elasticity of money demand was found to be high, as expected in economies with underdeveloped financial markets. Also, the evidence indicates that the domestic interest rate, when modified to take the peculiarities of financial markets in Sub-Saharan African economies, plays a significant role in the demand for money in Sierra Leone. On the other hand, the foreign interest rate was found to have no significant effect on the demand for money in Sierra Leone.

Date: 1992
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