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Cointegration With Structural Breaks Money Demand, Income, Interest Rates and Exchange Rate Models:

Year: 2024
Type: article
Abstract: The study investigated the dynamic relationships between money demand, income, prices, real effective exchange rates, and the savings, lending, discount and deposit rates in Uganda using a modified ARDL model catering for cointegration and structural breaks. It was established that: cointegration with structural breaks existed in all cases; monetary policy is not effectively transmitted through lending rates but is effectively transmitted through the savings, deposit and discount rates in the short-run as well as the saving and deposit rate in the long-run; the exchange rate transmission channel is effective both in the short-run and in the long-run; after accounting for structural breaks, the equations for all the variables are stable except that for deposit rate which is partially stable; money demand has an inelastic positive effect on income in the long-run only, has an inelastic positive effect in the short-run but an elastic positive effect in the long-run on price; increasing the saving rate is a more effective means of increasing income in Uganda; and that the discount rate has a negative inelastic effect on money demand and income in the long-run. It is recommended that: continuous studies to determine the most effective monetary policy transmission channel(s) be conducted regularly by monetary authorities as a rule in all countries; and efforts to address the shortcomings devised on a continuous basis.
Language: English
Open Access status: diamond
OpenAlex ID: W7008672613
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