IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v9y2025issue-15p934-949.html

Demand for Broad Money and Implication of Monetary Policy Instruments on Inflation Control: Evidence from WAMZ Countries

Author

Listed:
  • Osang, Paul Abijia.

    (Department of Economics, Nnamdi Azikiwe University Awka, Anambra State)

  • Orji, Alexander Chinedu.

    (Department of Economics, Nnamdi Azikiwe University Awka, Anambra State)

  • Nwokoye Ebele Stella

    (Department of Economics, Nnamdi Azikiwe University Awka, Anambra State)

Abstract

Inflation is a major problem facing the West Africa Monetary Zone (WAMZ). This economic menace requires stability in broad money demand and appropriate monetary policy instruments to control. Thus, this study focused on exploring the demand for broad money and implications of monetary policy instruments on inflation control in the West Africa Monetary Zone (WAMZ) using time series and panel data. The objectives of this study are to examine the impact of demand for broad money (m2) on inflation in the WAMZ countries, and also to examine the implication of monetary policy instrument on inflation control in the WAMZ countries. The study covered the period of 1980 to 2023 and employed the Augumented Dickey – Futher unit root test (ADF), Johansen’s co-integration test and the error correction model (ECM) to estimate the long-run relationship between real broad money (m2) and inflation. The variables include: real broad money (M2), interest rate on short term deposit, yield on the WAMZ treasury bills, expected inflation, expected depreciation of WAMZ currencies against the US dollar, yield on US treasury bills and foreign interest rate. Results from the long-run coefficient estimation shows that real gross domestic product (scale variable in %) positively and significantly imparted on broad money demand both in the long and short run while other explanatory variables has insignificant impact on broad money demand in the WAMZ. There appears to be a long-run relationship for demand for real M2 but the relationship is not stable. Exogenous output shocks, financial innovations, changes in income velocity, and inadequate data quality contributed to the instability. The authorities may need to apply the monetary targeting regime in the overall objective of preserving price stability. A possible option for the WAMZ is to abduct an inflation target lite framework.

Suggested Citation

  • Osang, Paul Abijia. & Orji, Alexander Chinedu. & Nwokoye Ebele Stella, 2025. "Demand for Broad Money and Implication of Monetary Policy Instruments on Inflation Control: Evidence from WAMZ Countries," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(15), pages 934-949, July.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-15:p:934-949
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-9-issue-15/934-949.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/demand-for-broad-money-and-implication-of-monetary-policy-instruments-on-inflation-control-evidence-from-wamz-countries/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:aer:wpaper:53d576f2e10c is not listed on IDEAS
    2. Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February.
    3. Klein, Benjamin, 1977. "The Demand for Quality-adjusted Cash Balances: Price Uncertainty in the U.S. Demand for Money Function," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 691-715, August.
    4. Adesoye, A. Bolaji & Maku, Olukayode E. & Atanda, Akinwande AbdulMaliq, 2012. "Is Monetary Policy a Growth Stimulant in Nigeria? A Vector Autoregressive Approach," MPRA Paper 35844, University Library of Munich, Germany.
    5. Onwachukwu, Chinedu Increase, 2014. "Impact of Monetary Policy on Inflation Control in Nigeria," MPRA Paper 67087, University Library of Munich, Germany.
    6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    7. Longinus Rutasitara, 2004. "Exchange rate regimes and inflation in Tanzania," Working Papers ae2b42f0-7733-46f1-b23e-5, African Economic Research Consortium.
    8. K.r. Todani, 2007. "Long‐Run M3 Demand In South Africa: A Cointegrated Var Model," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 681-692, December.
    9. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    10. repec:onb:oenbwp:y::i:88:b:1 is not listed on IDEAS
    11. Kevin Nell, 2003. "The Stability of M3 Money Demand and Monetary Growth Targets: The Case of South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 39(3), pages 155-180.
    12. Idoko Ahmed Itodo & Seyi Saint Akadiri & Rotimi Mathew Ekundayo, 2017. "Monetary Policy and Price Stability in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(2), pages 68-75, June.
    13. repec:aer:wpaper:138 is not listed on IDEAS
    14. Arzu Tay Bayramoglu & Larry Allen, 2017. "Inflation Dynamics and Monetary Transmission in Turkey in the Inflation Targeting Regime," Journal of Reviews on Global Economics, Lifescience Global, vol. 6, pages 1-14.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James Hueng, C., 1998. "The demand for money in an open economy: Some evidence for Canada," The North American Journal of Economics and Finance, Elsevier, vol. 9(1), pages 15-31.
    2. Heimonen, Kari, 2001. "Substituting a substitute currency: The case of Estonia," BOFIT Discussion Papers 11/2001, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. Heimonen, Kari, 2008. "Substituting a substitute currency," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 66-84.
    4. Arize, A. C. & Malindretos, John & Grivoyannis, Elias C., 2005. "Inflation-rate volatility and money demand: Evidence from less developed countries," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 57-80.
    5. Heimonen, Kari, 2001. "Substituting a substitute currency : The case of Estonia," BOFIT Discussion Papers 11/2001, Bank of Finland, Institute for Economies in Transition.
    6. Levent, Korap, 2007. "Modeling purchasing power parity using co-integration: evidence from Turkey," MPRA Paper 19584, University Library of Munich, Germany.
    7. Yap, Wei Yim & Lam, Jasmine S.L., 2006. "Competition dynamics between container ports in East Asia," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(1), pages 35-51, January.
    8. Chen, Pei-Fen & Chien, Mei-Se & Lee, Chien-Chiang, 2011. "Dynamic modeling of regional house price diffusion in Taiwan," Journal of Housing Economics, Elsevier, vol. 20(4), pages 315-332.
    9. Boyer, M. Martin & van Norden, Simon, 2006. "Exchange rates and order flow in the long run," Finance Research Letters, Elsevier, vol. 3(4), pages 235-243, December.
    10. Javier G�mez P., 1998. "La Demanda Por Dinero En Colombia," Borradores de Economia 2969, Banco de la Republica.
    11. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    12. Evan Lau & Koon Po Lee, 2008. "Interdependence of income between China and ASEAN‐5 countries," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing Limited, vol. 1(2), pages 148-161, June.
    13. James Payne & George Waters, 2007. "Have Equity REITs Experienced Periodically Collapsing Bubbles?," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 207-224, February.
    14. Guneratne Wickremasinghe, 2011. "The Sri Lankan stock market and the macroeconomy: an empirical investigation," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 28(3), pages 179-195, August.
    15. Charles S. Morris & Robert Neal & Doug Rolph, 1998. "Credit spreads and interest rates : a cointegration approach," Research Working Paper 98-08, Federal Reserve Bank of Kansas City.
    16. Ryuzo Miyao, 2002. "Liquidity Trap and the Stability of Money Demand: Is Japan Really Trapped at the Zero Bound?," Discussion Paper Series 127, Research Institute for Economics & Business Administration, Kobe University.
    17. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(3), pages 458-478, September.
    18. Neil R. Ericsson & James G. MacKinnon, 2002. "Distributions of error correction tests for cointegration," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 285-318, June.
    19. Dutta, Shantanu & Bergen, Mark & Levy, Daniel, 2002. "Price flexibility in channels of distribution: Evidence from scanner data," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1845-1900, September.
    20. van de Gucht, Linda M. & Dekimpe, Marnik G. & Kwok, Chuck C. Y., 1996. "Persistence in foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 15(2), pages 191-220, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:9:y:2025:issue-15:p:934-949. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.