Session 3: Mobile money and the economy

Janine Aron – University of Oxford

Inflation forecasting models for Uganda: is mobile money relevant?

Prof Aron presented recent work investigating inflation forecasting models for Uganda, with a particular focus on the potential impact of mobile money. Aron and her co-authors estimate models to forecast the 1-month and 3-month ahead rate of inflation for food prices, non-food prices, and energy prices. They test a wide range of possible determinants, and allow for the possibility of structural breaks and non-linearities in the relationship between these determinants and inflation. An important development compared to research looking at similar issues in the recent past is the inclusion of rainfall shocks as a possible determinant. Overall, the authors find that mobile money has no discernible impact on inflation. Indeed, the authors find some very tentative, suggestive evidence that mobile money may help provide some downward pressure on inflation – which may, for example, reflect positive impacts on productivity.

Sebastien Walker – University of Oxford

Mobile Money and Monetary Policy

Sebastien Walker presented recent work, in collaboration with IGC Tanzania Lead Academic Chris Adam, investigating the implications of mobile money for monetary policy. They build on a model set out by Anand and Prasad (2010), in which there are two types of household – urban households, which have some access to savings and credit and are thus sensitive to monetary policy, and rural households, which are cut off from financial markets. The authors introduce mobile money into this framework by allowing for remittances to be sent from urban to rural households, via mobile money – and thus linking the rural sector indirectly to monetary policy action. The authors find that mobile money supports the operation of monetary policy, reducing the volatility of inflation – as well as supporting broader macroeconomic stability, such as by lowering volatility in GDP.

Discussant: Pantaleo Kessy – IGC Tanzania, and Deputy Director of Research, Bank of Tanzania

Dr. Kessy provided a policy-maker’s perspective of the impact of mobile money on monetary policy, noting the increase in the money multiplier that it seems to have contributed to and welcomed the insights from the research presented. He also highlighted the need for further research, in addition to a focus on mobile money, to address the impacts of additional recent developments in the financial industry in East Africa, including the rapid increase in proliferation of ATMs and credit and debit cards.