VELOCITY OF MONEY WITHIN THE FRAMEWORK OF MONETARY TARGETING IN SIERRA LEONE

Alfred J. H. Aruna ()
Additional contact information
Alfred J. H. Aruna: Financial Markets Department, Bank of Sierra-Leone

West African Journal of Monetary and Economic Integration, 2016, vol. 16, issue 1, 62-96

Abstract: A pre-requisite for monetary targeting strategy is a stable money demand function, which in turn requires stability in velocity. The study investigates the impact of financial development on the velocity of money in Sierra Leone, over the time horizon 1970-2013. The method of principal components is employed to construct a Financial Sector Development index (FSD) used to proxy development in the sector. Using the Autoregressive Distributed Lag (ARDL) approach, the results confirm that financial sector growth has a significant negative relationship on income velocity in Sierra Leone. The pair-wise granger causality test reveals that there is no causality between financial development and income velocity thus underscoring the fact that Sierra Leone is still in its early stages of financial development. Money growth also Granger causes velocity of money and thus changes in the past values of money growth can be used to predict the change in the present value of velocity of money. Hence, the Friedmanite Hypothesis is verified in the case of Sierra Leone. Thus, the study recommends that the monetary authority should improve access to banking and financial services especially in rural areas as a vast majority of the rural community is financially excluded so as to improve financial development and overall economic growth.

Keywords: Income Velocity; Financial Development; Monetary Targeting Auto regressive distributed Lag LARDL (search for similar items in EconPapers)
JEL-codes: B26 C13 E40 E52 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.wami-imao.org/RePEc/articles/VELOCITY_O ... _IN_SIERRA_LEONE.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wam:journl:v:16:y:2016:i:1:p:62-96

Access Statistics for this article

West African Journal of Monetary and Economic Integration is currently edited by Ismaila Jarju

More articles in West African Journal of Monetary and Economic Integration from West African Monetary Institute Contact information at EDIRC.
Bibliographic data for series maintained by MOHAMED FOFANA ( this e-mail address is bad, please contact ).