How stable is the demand for money in African countries?
Purpose – Studies that have addressed the stability of the demand for money in African countries are rare. A few papers have addressed the issue in a small number of individual countries. For cross-country comparison, this paper aims to investigate the stability of the M2 demand for money in 21 African countries using quarterly data over the period 1971Q1-2004Q3. Design/methodology/approach – A standard money demand function is designed. It is estimated using a bounds testing approach to co-integration and error-correction modeling. Findings – Application of the CUSUM and CUSUMSQ tests to the residuals of error-correction models reveals that in almost all 21 countries, M2 demand for money is stable. This could be due to incorporating the short-run adjustment process in testing for the stability of the long-run elasticity estimates. Research limitations/implications – Due to data limitations, the study could not be extended to all countries in Africa. Originality/value – This is the most comprehensive study in the literature for Africa.
Volume (Year): 36 (2009)
Issue (Month): 3 (September)
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