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The effect of exchange rate on the money demand: evidence from ECOWAS countries

Author

Listed:
  • Ibrahim N Ouattara

    (Dept. of Economics of Alassane Ouattara University of Bouake, Cote d'Ivoire)

  • Balakissa Kone

    (Dept. of Economics of Alassane Ouattara University of Bouake, Cote d'Ivoire)

Abstract

This paper investigates the effects of exchange rate on the demand for money in ECOWAS countries by applying panel (auto-regressive distributed lag) ARDL approach. The results reveal existence of currency substitution. We find that real effective exchange rate has positive long-run effects on the demand for money, suggesting that the expectation effect dominates the wealth effect; real effective exchange rate has negative effects in the short-run implying that the wealth effect dominates the expectation effect. When we use nominal effective exchange rate as alternative of real exchange rate, our results remain similar.

Suggested Citation

  • Ibrahim N Ouattara & Balakissa Kone, 2023. "The effect of exchange rate on the money demand: evidence from ECOWAS countries," Economics Bulletin, AccessEcon, vol. 43(4), pages 1565-1580.
    • Handle: RePEc:ebl:ecbull:eb-23-00042
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    More about this item

    Keywords

    Money Demand; Exchange rate; ECOWAS; Currency substitution; Panel ARDL;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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