Policy Brief: The Effects of Interest Rate Volatility and Money Demand in Sierra Leone using ARDL Estimation

This policy brief investigates Sierra Leone's interest rate volatility, a recurring concern due to its economic instability. Using the ARDL model and bolstered by the stability exhibited in CUSUM and CUSUM square tests, we explore the impact of deposit and lending interest rates on money demand. Short-term findings reveal a positive effect of deposit rates and a negative effect of lending rates on money demand. However, in the long run, these effects become insignificant. To enhance economic stability, we suggest implementing a uniform interest rate for commercial banks and vigilant monitoring of competitive lending rates as policy measures.