Macroeconomic determinants of the demand for international reserves and monetary disequilibrium in Namibia

Esterhuizen, Andy

Macroeconomic determinants of the demand for international reserves and monetary disequilibrium in Namibia

Thesis / Dissertation

2024

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

Following the extended version of the buffer stock model, this empirical analysis broadly focuses on assessing the macroeconomic determinants of the demand for international reserves in Namibia. The study employs the autoregressive distributed lag (ARDL) approach to cointegration, covering the period 2000q1 to 2021q4. Empirical results reveal the existence of a long-run relationship between reserve demand and the regressors, that is, broad money, foreign direct investment, real GDP and opportunity cost. The significant finding on opportunity cost is an indication that the accumulation of reserves is motivated by returns to assets in Namibia. Focusing on the main thrust of the study, we failed to validate the existence of the theory of the monetary approach to the balance of payment signified by the term monetary disequilibrium. Short-run results are corroborated by a negative and statistically significant error correction term. The CUSUM and CUSUMSQ tests suggest stability in Namibia's reserve demand function over the study period.

Keywords

Commerce

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