Financial liberalization and transmission of monetary policy in developing countries: The cases of Ghana and Kenya.

摘要

This dissertation investigates the effects of financial liberalization policies on money demand functions, allowing for possible new determinants and using the data from Ghana and Kenya are used. When interest rates are deregulated under the financial liberalization regime, the question arises whether the credit channel loses its role or effectiveness and whether the monetary authorities can rely on the interest rate channel to affect real economic activities. In contrast to the conventional approach, the degree of credit restraint variable is introduced in the money demand functions, as a proxy for opportunity cost, reflecting the unobservable interest rates which prevail in the informal credit markets. The significance of the credit restraint variable suggests that this proxy is a valid determinant of money balances in countries where interest rates on deposits and loans in the formal financial system are controlled by the government.; A simultaneous equation model is developed to allow for the interaction between the variables, which enter the money demand function, and the supply of money. Partial adjustment and adaptive expectations mechanisms are also dealt with, through Koyck transformation in which the money demand function is specified as a function of expected income, expected degree of credit restraint, other opportunity cost and institutional variables.; Econometric results indicate that the credit restraint variable in the demand for money functions has a stronger explanatory power than either the return on domestic and foreign assets, inflation rate, or the banking density. There are, however, some contrasts between Ghana and Kenya. Inflation rate and the credit restraint variable appear to be the most influential variables in the narrow money demand for Ghana, while the rates on treasury-bills and on time and savings deposits have the strongest effect in the narrow money demand for Kenya. As for Ghana's broad money, inflation and credit restraint appear again to be the most significant determinants, along with the banking density variable, while banking density and credit restraint have the strongest effects in the case of Kenya. The Chow Test for stability reveals that two structural break in the data occurred in 1983 for Ghana, and 1991 for Kenya.; This study finds some evidence that interest rates might have become an important explanatory variable in the money demand functions of Kenya, but weak evidence is found for Ghana.