INFLATIONARY EXPECTATION, EXCHANGE RATE AND DEMAND FOR MONEY IN SUDAN FROM 1970-2003

Abstract

The purpose of this study is to empirically assess the main determinates of demand for money in Sudan paying particular attention to the impact of inflation and exchange rate movements on the estimated function with annual data over the period 1970-2003, using cointegration and error correction methodology.
 The results of the cointegration analysis confirm the existence of a stable money demand. The results of the dynamic model of money demand suggest that money demand is influenced in the short run by income, the expected inflation and the exchange rate.
 The study recommended that; the broad money aggregate could be used in the process of monetary targeting for inflation control in Sudan. Exchange rate stability can be effective in controlling inflation in short- run.