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The Stability of the Demand for Money in Monetary Unions: Some Empirical Evidence from WAEMU

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  • Pierre Canac
  • Hassan Shirvani
  • Barry Wilbratte

Abstract

Previous studies of the stability of the demand for money have been largely conducted in the context of individual countries. To the extent that these countries have control over their monetary policies, such an approach is well justified. However, for monetary unions, where the control over monetary policy is usually vested in a central or outside authority, it is more appropriate to examine the stability of the money demand for the union as a collective entity. This paper follows this approach with respect to a West African monetary union, the WAEMU, whose monetary policies are largely dictated by the French authorities. Using cointegration theory and CUSUM stability tests, we find evidence that the demand for broad money is stable in this union. Given the empirical results, the paper draws inferences regarding their implications for the formulation of optimal monetary policy for the WAEMU.

Suggested Citation

  • Pierre Canac & Hassan Shirvani & Barry Wilbratte, 2009. "The Stability of the Demand for Money in Monetary Unions: Some Empirical Evidence from WAEMU," International Economic Journal, Taylor & Francis Journals, vol. 23(4), pages 617-628.
    • Handle: RePEc:taf:intecj:v:23:y:2009:i:4:p:617-628
    DOI: 10.1080/10168730903372190
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    References listed on IDEAS

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    1. Apostolos Serletis, 2007. "The Demand for Money," Springer Books, Springer, edition 0, number 978-0-387-71727-2, June.
    2. Mr. Subramanian S Sriram, 1999. "Demand for M2 in an Emerging-Market Economy: An Error-Correction Model for Malaysia," IMF Working Papers 1999/173, International Monetary Fund.
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