An Empirical Investigation of the Stabilisation Potency of Budgetary and Financial Policy Instruments in Sierra Leone
No Thumbnail Available
Date
2001-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
This study aims at determining the effect of government expenditure on real output, the effect
of budget deficit and domestic credit on inflation and the balance-of-payments and the effect
of exchange rate depreciation on the balance of payment, inflation and real output.
time series models of inflation, balance of payments and real output have been estimated as
these are the key variables targeted by stabilization programs, which involve budgetary and
financial policy instruments. The procedure used involves applying the Johansen Maximum
Likelihood Method ill multivariate models and the hendry’s general-to-Specific Method to
arrive at long- and short-run models, respectively.
Fiscal restraint is found to abate inflation and improve the balance of payments but it is
accompanied by real output loss. Budget deficit is found to Granger cause domestic credit and
the process through which the domestic credit creation worsens the balance of payments is
through its injlatiol1Cl1Y effect. Thereby dwindling the competitiveness of the Sierra Leone
economy. Exchange rate depreciation is found to improve the balance of payments in the long
run. It is however inflationary and it reduces real output in the short run though expansionary
in the long run.
Description
Keywords
Empirical Investigation, Financial Policy Instruments