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Article
The Relationship between Stock Market Capitalization and Money Demand in Tanzania: Evidence from ARDL Approach and Granger Causality Test
International Journal of World History and Economics (2015)
  • Abel A Kinyondo, University of Dar es salaam
  • Mwoya Byaro
Abstract
This paper investigates the relationship between stock market capitalization (MC) and money demand in Tanzania between 2000 and 2010. Findings show the presence of a long-run relationship between MC, extended broad money (M3) and interest rate when real GDP serves as dependent variable. Furthermore, saving deposit rate/real interest rate, M3 and MC variables were found to have a positive and significant influence on real GDP. However, the study captures the absence of long-run relationship between MC and money demand when M3 act as dependent variable. Also the study found a unidirectional relationship between MC and real GDP with causality running from MC to real GDP. This suggests that MC plays a vital role in promoting economic growth in Tanzania. Moreover bidirectional causality between M3 and MC was found. This implies that MC has an impact on M3 in the short run. In turn, unidirectional causality running from broad money (M2) to MC was found meaning M2 has an impact on MC growth. Given the obvious impact of MC in economic growth in Tanzania, the paper concludes by strongly recommending for policies geared towards promoting MC growth including controlled expansionary monetary policies.
Keywords
  • Granger Causality Test,
  • Stock Market and Money Demand
Publication Date
July 28, 2015
Citation Information
Abel A Kinyondo and Mwoya Byaro. "The Relationship between Stock Market Capitalization and Money Demand in Tanzania: Evidence from ARDL Approach and Granger Causality Test" International Journal of World History and Economics Vol. 4 Iss. 7 (2015)
Available at: http://works.bepress.com/abel_kinyondo/13/