Modeling of Money Demand Function in Sudan (1960-2005)

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Date
2015-06-17
Authors
Ola Hamdi Kamil, Amin
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Publisher
UOFK
Abstract
This study aims to develop a cointegrating , error-correction money demand model in Sudan during (1960-2005), test the stability of money demand , and determine the major factors which influence the money demand in the short and long –run , the study based on annual data published by the central bank of Sudan , ministry of Finance and the International Monetary Fund (IMF). In estimating the model, the study suggests money demand function includes the log of real money balances, log of real GDP ( as scale variable) , the inflation rate and the log of real exchange rate (as opportunity cost variables).we first test for co integration by carrying out unit root tests for the variables, we found that all the variables of interest are stationary at the first difference except the log of real exchange rate is stationary at the second difference so it is excluded from the cointegration analysis. The Johansen cointegration test is used, the results show that there is a long –run relationship between the real money balances, the GDP, and the inflation rate, the estimated model is consistent with the theoretical background. To estimate the short-run relationship an error correction model has been developed, it implies a short –run relationship between the real money balances and the explanatory variables, the estimated coefficients are compatible with the economic theories. In testing for stability, the study found that the money demand is unstable before and after liberalization, and there were two structural points in 1978 and 1992
Description
75page
Keywords
Modeling ,Money ,Demand Function, Sudan
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