Excess Liquidity and Effectiveness of Monetary Policy: Evidence from Sub-Saharan Africa

By Magnus Saxegaard. Social Science Research Network, 2006

301 citations recorded by the source corpus.

This paper examines the pattern of excess liquidity in sub-Saharan Africa and its consequences for the effectiveness of monetary policy. The paper argues that understanding the consequences of excess liquidity requires quantifying the extent to which commercial bank holdings of excess liquidity exceed levels required for precautionary purposes. It proposes a methodology for measuring this quantity and uses it to estimate a nonlinear structural VAR model for the CEMAC region, Nigeria and Uganda. The study suggests that excess liquidity weakens the monetary policy transmission mechanism and thus the ability of monetary authorities to influence demand conditions in the economy.

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Citations in the corpus

The Role of Information Sharing in Modulating the Effect of Financial Access on Inequality (2019, unknown): “Moreover, financial access in African financial institutions has been dampened by significant concerns of excess liquidity (Fouda, 2009; Saxegaard, 2006).”
Information Sharing and Financial Sector Development in Africa (2017, background): “Recent literature accords with the view that access to finance in the continent has been constrained by issues of surplus liquidity (Asongu, Anyanwu, & Tchamyou, 2016; Fouda, 2009; Saxegaard, 2006).”
Knowledge Economy Gaps, Policy Syndromes, and Catch-Up Strategies: Fresh South Korean Lessons to Africa (2015, unknown): “2014), especially corruption in upholding IPRs (Andrés and Asongu 2013a); surplus banking liquidity; or absence of credit to finance investment needs (Saxegaard 2006; Nguena and Tsafack 2014).”
Information Asymmetry and Financial Development Dynamics in Africa (2016, unknown): “Unfortunately, access to finance in African financial institutions has been marred by substantial issues of surplus liquidity (Saxegaard, 2006; Fouda, 2009), despite the introduction of public credit registries (PCR) and private credit bureaus (PCB) to mitigate the information asymmetry associated…”
Monetary Transmission in Low-Income Countries: Effectiveness and Policy Implications (2012, unknown): “Saxegaard (2006), for example, estimated that excess reserves amounted to over 13 percent of deposits on average in sub-Saharan banking systems in 2004.”
Monetary Transmission in Low Income Countries (2010, unknown): “Saxegaard (2006) Central African Economic and Monetary Community (CEMAC), Nigeria and Uganda.”
Financial development dynamic thresholds of financial globalization: Evidence from Africa (2012, result): “This finding is consistent with the substantially documented issues of surplus liquidity in African financial institutions (Saxegaard, 2006; Fouda, 2009).”
The Role of Knowledge Economy in African Business (2016, background): “3 Economic incentives on African business and policy implications Due to substantially documented issues of surplus liquidity in African financial institutions (Saxegaard, 2006; Nguena & Tsafack, 2014; Asongu, 2014), we have defined economic incentives in this paper as the ability of surplus deposit”