The demand for money in Kenya: a test of the Mckinnon-shaw model
Abstract
This paper examines the relevance and suitability of the Mckinnon-
Shaw model for money demand in Kenya and the implications for
monetary policy administration. The results reported show that
there exists significant complementarity effects between money
assets and other physical assets in the Kenyan economy.
The paper shows that the real demand for money in Kenya is considerably influenced by real income, return on physical assets
and the return on money assets. The results further indicates that
the broad definition of money(M2) performs better than Ml or M3 in
the specification of money demand function. The results also
indicates that there is no significant difference in real demand
for money when current actual and expected income are used.
Based on these findings, the paper concludes that the Mckinnon-Shaw
model is appropriate and suitable for the Kenyan economy. Policy
administrators should therefore consider all the three variables
when they want to control the demand for money in Kenya.
Citation
Masters thesis University of Nairobi (1991)Publisher
University of Nairobi Department of Economics