Browsing by Author "Ndanshau, Michael O. A."

Now showing 1 - 14 of 14
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    The Behaviour of Income Velocity in Tanzania, 1967-1994
    (1996) Ndanshau, Michael O. A.
    Tanzania's rapid expansion in domestic credit since the late 1960s has resulted in an increasing growth in money supply. This was given particular significance in the structural adjustment programme adopted in 1982 and the three-year economic recovery programme of 1986, commonly referred to as ERP-I, which was extended to ERP-II, also referred to as economic and social action programme.
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    Budget Deficits, Money Supply and Inflation in Tanzania: A Multivariate Granger Causality Test, 1967–2010
    (2012) Ndanshau, Michael O. A.
    This paper investigates empirically the nexus between budget deficits, money supply and inflation in Tanzania by employing data for the period 1967 – 2010. Pair-wise Granger causality test established a one-way causal effect, running from inflation to budget deficit and the monetary base. These findings were supported by results from the Vector Error correction model (VECM) estimated. It is shown that there exist a significant inflation inertia and causal effect on budget deficit over the short-run. The VECM results showed that shift in monetary policy regime exerted a significant effect on inflation and budget deficits. Innovation of the ratio of budget deficit to money balances as alternatives for the traditional budget deficit to income ratio was found to lack significant effect on the results. Results are very indicative but highlight the importance of containing inflation to check its effect on budget deficits over the short-to long-run periods. The results also suggest that robust econometric results can be obtained by deflating budget deficits by monetary aggregates or income.
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    The Currency Ratio in Tanzania: An Econometric Analysis
    (2004-12) Ndanshau, Michael O. A.
    This study tested some key hypotheses on the determinants of the currency ratio in Tanzania. The econometric results suggest that real income is, as theorized, negatively related to and a significant determinant of the currency ratio in Tanzania. The estimated income elasticity coefficient, found to be far less than unity, suggests there is poor substitution between currency and demand deposits in Tanzania. The results also showed that expected inflation was negatively related to the currency ratio in Tanzania. While the structural adjustment programme was found to increase and shift upward the currency ratio function in Tanzania, the liberalization of the financial sector was found to shift decrease and shift downward the currency ratio function. Most institutional variables were found to lack the expected sign and significance in explaining the currency ratio in Tanzania, probably because of inadequacy of the proxies used.
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    Dependency Rates, Poverty and Saving Rates in the LDCs: Evidence from Cross-Sectional Household Data in Tanzania
    (1998-01) Ndanshau, Michael O. A.
    This paper examines the hypothesis that dependency rates and poverty adversely affect private savings in developing countries (LDCs) by using panel data from a one-shot survey of peasant households in Northern Tanzania. Overall, the multivariate regression results demonstrate that dependency rates have a statistically significant influence on savings in poor households and an insignificant positive effect on savings in rich households. The same positive but insignificant influence of dependency rates also obtains in the overall sample results and, by and large, when the dependency ratio is disaggregated. Empirical analysis also shows that wealth and income are determinants of savings in the rich peasant households and only cultivated land (per capita) determines savings in poor peasant households. The estimated income elasticity of savings is greater in the rich household than in the poor households, implying the latter saves less out of current income. The empirical results of this paper fail to support the 'claimed' adverse effect of dependency rates on savings in the LDCs, at least in the sampled area in Tanzania. This empirical finding undermines birth control policy measures in Tanzania. Besides, to the extent that rich households save more out of income and wealth underscores targeting of financial saving instruments to the rich rural households and, the adoption of policies that would increase saving capacities of poor households is implicit from the results. The findings and the main conclusions of this study need, however, to be treated cautiously because of the specificity of the area covered. Further exposure to data of the dependency ratios-savings nexus to household budget survey data is required
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    The Determinants of Interest Rate Spreads in Developing Countries: Evidence on Tanzania, 1991-2009
    (2011) Aikaeli, Jehovaness; Mugizi, Francisco M. P.; Ndanshau, Michael O. A.
    The now market based financial system in Tanzania is characterized by relatively high interest rate spreads. This paper sought to establish relative importance of macroeconomic and regulatory factors in explaining persistence of interest rate spread in Tanzania during the period 1991:I - 2009:IV. A Cointegration and Error Correction Model (ECM) was used to fit the data for Tanzania. The results revealed the interest rate spreads in Tanzania were strongly influenced by net government borrowing from commercial banks, development of the banking sector, statutory minimum reserve requirement and the discount rate. Among others, the results suggest the importance of low discount rate and reduced or total dispense with reserve requirement as a monetary policy strategy to reduce interest rate spreads in Tanzania. Importance of price stability in financial deepening is also underscored by the results.
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    The Determinants of Money Multiplier in Tanzania
    (2005) Ndanshau, Michael O. A.
    The main purpose of this paper was to investigate the behaviour and stability of the money multiplier in Tanzania by using un-deseasonalised data for the period 1986:II-2005:I. The results show that short-term interest rates were not significant determinants of the money supply in Tanzania. This finding supports the theory on exogeneity of money supply determination. Even though, both descriptive and regression analyses indicated that the elasticities of the narrow and broad money together with their multipliers were unstable prior to the implementation of market clearing monetary policy regime started in 1993. Moreover, the results attest to existence of a sluggish adjustment of equilibrium money stock to changes in monetary base. This is a typical outcome in economies with nascent financial markets; and, suggests that expansionary monetary policy through open market operations would be inflationary. In general the result suggests that the central bank in Tanzania can, in the due cause, be able to a big extent to control monetary expansion by controlling the base money. Granted, the slight instability in the money multipliers could be controlled for in monetary programming by either accommodating in monetary base or influencing the behaviour of the nonbank sector by other policy measures.
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    An Econometric Analysis of Engel's Curve: The Case of Peasant Households in Northern Tanzania
    (2001) Ndanshau, Michael O. A.
    A number of studies have explored the empirical relevance of the Engel's law by using household budget surveys in developed and developing countries. This article presents an empirical evidence on the applicability of the Engel's law in Tanzania. The analysis is based on a micro-survey data of peasant households in Northern Tanzania. Both statistical and econometric analyses demonstrate that household size and income significantly and positively determine expenditure on food and some other consumption items, depending on the area of the study. The age of the household is established to have no significant influence on expenditure on food, but only on other consumption itemsinvestigated. The study has also established that education has no significant influence on any expenditure items of the sampled households
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    Informal Credit in Tanzania: Evidence from a Case Study in Northern Tanzania
    (2004-12) Ndanshau, Michael O. A.
    The aim of this paper has been to examine the scope of informal credit sources, uses and the size in Arusha region, Northern Tanzania. The main questions addressed by the study are threefold. First, is whether informal credit in rural areas is accounted for the inadequacy or absence of formal credit. Second, is whether informal credit sources is influenced by social and cultural factors rather than mere economic factors. Thirdly, is whether informal credit use are complements rather rather than substitute for formal credit. The data used in this paper were collected in a survey that covered 256 households in three districts in Arusha region. The data analysis reveals the important role played by the informal credit sources, particularly friends, neighbours and relatives. However, the survey results failed to establish the existence of the classical informal lenders, including the landlords and moneylenders, though existed in some of the areas studied, were found to be of little importance. the study also established that the peasants viewed the informal financial institutions (IFIs) as the traditional financial institutions that need remain, the informal loans extended appears to complement the formal loans extended by the formal financial sector (FFS). This is evident from the composition of the items financed by the informal loans, which include consumption expenditures and other indirectly productive expenditures, that are traditionally not financed by the FFIs in Tanzania. By their very nature the informal loans are small and of short-term natures and, as peasants argue, for large sums of funds one has to recourse to the FFIs. The survey evidence shows that the existence of the IFIs in the areas surveyed is explained by three main factors. First, penchant of the peasants to borrow or lend informally. Second, is easy accessibility and timely delivery of the informal loans. A third factor is the inaccessibility to formal loans. In this respect complicated procedures and lack of security were reported as contributory factors.
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    Money and Other Determinants of Inflation: The Case of Tanzania
    (2010) Ndanshau, Michael O. A.
    This paper seeks to establish the relative importance of money and other factors in explaining inflation in Tanzania. The analysis was based on quarterly data for the 1967 – 2005 period. Both long run regression results failed to establish existence of positive one-to-one correspondence between growth rates of three monetary aggregates (M1, M2, M0) and (headline) inflation in Tanzania. The lack of the one-to-one correspondence as predicted by the Quantity Theory of money also emerged form estimated dynamic autoregressive distributed lag (ADL) error correction model (ECM). Instead, other factors, particularly growth in real income, were found to exert the expected depressive influence on inflation. This finding underscores the importance of the demand for money in explaining inflation. Other important structural factors found to influence inflation in Tanzania include nominal exchange rate and inflation inertia. In aggregate the long run influence of changes in money was found to be very small if compared to that exerted by structural factors. This suggests limitations to monetary policy and importance of structural factor in explaining the dynamics of inflation in Tanzania. On account of theoretical controversies and innovations that have characterized inflation theory to-date coupled with methodological issues of interest, more research on inflationary process in Tanzania is called for to anchor or better the results of this paper.
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    On Interest Rates and Other Determinants of Financial Savings: An Empirical Investigation in Tanzania
    (2012) Ndanshau, Michael O. A.
    This paper investigates determinants of financial saving in Tanzania during the period 1967- 2010. Both OLS method and dynamic error correction (coitegration) model (ECM) approaches were employed to test the hypothesis that the interest rate elasticity of financial savings was positive during the study period. The regression results rejected the hypothesis that the interest rate of financial savings was negative and statistically insignificant for the period 1967-1986, a period that was characterised by staunch Government regulation and control of the financial sector. Also unexpectedly, the results rejected the hypothesis that the interest rate elasticity of financial savings was positive during the period 1987-2010, a period that was characterized by market determined interest rates. The results also showed a decrease in absolute size of the real interest rare elasticity of financial savings over the two sub-sample period. Several robustness tests confirmed the estimated sign and sensitivity of financial savings to real interest rates for both sub-sample periods. The results, however, are inconsistent with the traditional theory and therefore demands for further empirical investigation.
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    Scope, Structure and Policy Implications of Informal Financial Markets in Tanzania. AERC Research Paper 18, Nairobi
    (1993) Hyuha, M.; Ndanshau, Michael O. A.; Kipokola, J. P.
    Studies of financial superstructures in developing countries have shown that financial structures in these countries are dualistic in nature. On the one hand, there exists a set of institutions comprising the formal financial sector (FFS). This is the legally-regulated part of the financial system, and consists of institutions like the central and commercial banks (i.e., the banking system), near-banks, insurance companies, and development banks, to mention a few. Normally, the rest of these formal financial institutions (FFIs) are by law under the direct control of the central bank. On the other hand, there are institutions that are virtually outside the control of the established legal framework. These are the informal financial institutions (IFIs) such as moneylenders, rotating savings and credit associations (ROSCAs), landlords, neighbours, traders, etc. The basic feature of these institutions is that they participate in the saving-investment process on an informal basis, and are the financial part of what is commonly known as the informal sector. The nature, scope, role and technologies of the IFIs appear to differ fundamentally from those of the FFIs, as will become clearer later on in this study