We analyse the determinants and stability of Uganda’s real money demand function during financial liberalization. The study contributes to literature in 4 ways, i.e.: assessing the determinants and stability of Uganda’s money demand function for the financial liberalization period; this is also done while incorporating the presumably disruptive financial innovations; assessing Uganda’s money demand stability during this episode; and applying the ARDL estimation strategy on Uganda’s Monetary Policy. GDP, exchange rate, inflation, interest rate spread and foreign interest rate explain Uganda’s real money demand. The results confirm the existence of a stable long run money demand function. The error correction term is significant and negative. Fundamentally, the financial innovations have not caused structural divergence in Uganda’s long run money demand function as would have been expected. Income is significant and close to unity and therefore a good money demand indicator in both the short and long run. Most importantly, financial innovation efforts in Uganda’s monetary policy should be intensified since they haven’t had negative effects on monetary stability.
Keywords: money demand, stability, financial liberalization, financial innovations
JEL Classification: E41; E52; E6; O23
money demand, stability, financial liberalization, financial innovations