The redistributive effects of inflation and the shape of money demand

Onah

African Development Review

et al. 2022

Studies that explore the relationship between financial innovation and the stability of money demand in Africa use the indirect measure of financial innovation. Previous studies on Nigeria also ignored total monetary aggregates (M3), despite its importance to monetary policy formulation and liquidity management. This paper contributes to the existing literature in two ways; first, we expand the generic money demand function to include the direct measure of financial innovation. Second, we test the model on Nigeria using a broader definition of money demand-narrow money (M1), broad money (M2) and total monetary aggregates (M3). We employ the Pesaran et al. (2001) autoregressive distributed lag (ARDL) bounds test approach to cointegration in estimating the respective equations and find evidence of a long-run relationship between money demand and financial innovation. The CUSUM and CUSUM-of-Squares tests reveal stable money demand across the three measures of money demand, which indicates that the inclusion of financial innovation has not altered the long-run stability of money demand in Nigeria.

Section: Literature Reviewmentioning

confidence: 99%

Financial innovation and the stability of money demand in Nigeria

Onah

African Development Review

et al. 2022

“…Zhao and Li (2015) investigated the combined effect of black-market interest rate, seigniorage and money demand on hyperinflation in China and found that Chinese hyperinflation was driven mainly by the government's quest for revenue. Boel (2018) examined the redistributive effect of inflation expectation in Organisation for Economic Co-operation and Development (OECD) countries, using a micro-founded model of money where agents differ in their consumption risk, against which they can insure using money and government bonds. The author found that curvature and height of the money demand curve and wealth redistribution have a distributional effect on inflation, implying that a higher and less elastic money demand leads to more regressive effects on inflation.…”

Section: Review Of Related Literaturementioning

confidence: 99%

Effect of financial technology on cash holding in Nigeria

Onah

et al. 2021

AJEMS

PurposeThis paper aims to examine the effect of financial technology on cash holding in Nigeria.Design/methodology/approachThe authors use Pesaran et al.’s (2001) autoregressive distributed lag (ARDL) bounds test approach to cointegration to estimate the long-run relationship between four direct measures of financial technology (automated teller machine [ATM], Internet banking [IB], point of sale [POS] and mobile banking [MB]) and cash holding.FindingsThe authors find the presence of long-run negative relationship between cash holding and the four direct measures of financial technology.Practical implicationsDespite the negative effect of financial technology on cash holding, the descriptive results highlight increasing trajectory in cash holding. This suggests that structural factors such as ethical climate, literacy level, household characteristics, currency denomination structures, economic uncertainty and infrastructure deficit may account for the pervasive cash transactions in Nigeria and not necessarily the unwillingness of economic agents to use digital platform for financial transactions.Originality/valueThis study contributes to existing literature by augmenting the money demand function to accommodate direct measures of financial technology in examining the effectiveness of the policy on cash holding in Nigeria.

Review of Income and Wealth

“…He also departs from the literature discussed above as he concludes that expected inflation may act as a progressive tax. Boel (2018) also finds a nonlinear relationship between inflation and inequality in a matching model where agents differ in their consumption risk: inequality declines for low to moderate inflation rates, while the opposite is true when inflation moves from moderate to high levels. Menna and Tirelli (2017) reconsider optimal inflation in a Dynamic Stochastic General Equilibrium (DSGE) model with limited access to the market for interest bearing assets.…”

Section: Related Literaturementioning

confidence: 97%

Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries

Herradi

Haan

Leroy

2022

This paper examines the distributional implications of inflation on top income shares in 14 advanced economies using data over the period 1920-2016. We use Local Projections to analyze how top income shares respond to an inflation shock, and panel regressions in which all variables are defined as five-year averages to examine the impact of inflation on the position of the top-one-percent in the long run. Our findings suggest that inflation reduces the share of national income held by the top one percent. Furthermore, we find that inflation shocks and long-run inflation have similar effects on top income shares.