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Determination of Long and Short Run Demand for Money in the West African Monetary Zone (WAMZ) Countries: A Panel Analysis

Author

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  • Agya Atabani Adi

    (Federal University Wukari, Nigeria)

  • Joshua Sunday Riti

    (University of Jos, Nigeria)

Abstract

This paper examines demand for real money balances in six West African countries from 1985--2014 using a panel cointegration technique. Real income and inflation rate positively affect demand for money, whereas interest rate spread, real effective exchange rate, and the U.S. real interest rate negatively affect broad money demand in the long run. Income elasticity is greater than unity in the long term and less than unity in the short term. All the variables examined are significant except effective exchange rate. Both the currency substitution and capital mobility hypotheses hold for the long run, but only the capital mobility hypothesis holds in the short run. We recommend that monetary aggregate grow more slowly than economic growth to maintain price stability. Countries should maintain a stable exchange rate and ensure a market driven interest rate policy.

Suggested Citation

  • Agya Atabani Adi & Joshua Sunday Riti, 2017. "Determination of Long and Short Run Demand for Money in the West African Monetary Zone (WAMZ) Countries: A Panel Analysis," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 2(2), pages 79-97, December.
    • Handle: RePEc:sgh:erfinj:v:2:y:2017:i:2:p:79-97
    DOI: 10.33119/ERFIN.2017.2.2.2
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    References listed on IDEAS

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    3. Joof, Foday, 2021. "The Co-Movement between Foreign Reserves, Economic Growth and Money Supply: Evidence from the WAMZ Countries," MPRA Paper 110193, University Library of Munich, Germany.

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    More about this item

    Keywords

    demand for money; interest rate spread; capital mobility; currency substitution; panel analysis;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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