Long Run Money Superneutrality Evaluation of the Relevance of Money in Africa: An ARDL Approach

Neutrality of money holds that the real economy is not affected by the level of the money supply level. Superneutrality of money as a property stronger than neutrality of money connotes that the rate of money supply growth has no effect on real variables. The hypothesis of money superneutrality is about what the long run relationship between money supply growth and growth in real output and changes in price levels and what these suggest for the use of monetary aggregates in the conduct of monetary policy. This paper assesses the validity of the hypothesis of money superneutrality in the long run by gathering empirical evidence for 50 African economies within five (5) monetary and economic blocs of Africa (EAC, ECCAS, ECOWAS, AMU/MENA, and SADC), including Djibouti and Ethiopia. This study determines if money supply growth is influential across economies in Africa. The autoregressive distributed lag (ARDL) bound testing cointegration approach developed by Pesaran et al (2001) was employed to test money superneutrality in this study. Relevant time series annual data of money supply growth, and real GDP growth and inflation spanning over a period of 42 years between 1980 and 2022 were sourced and applied for 53 African countries under the study. Findings and results generated from the ARDL estimation results produced evidence to suggest that money is not superneutral in monetary policy outcomes and implementation virtually all the economies of Africa evaluated, from both perspectives of the influence of money supply growth on real output and on inflation. However, it is necessary to state that the assessments of the influence of money supply growth on inflation rate yield establish the relevance of money across African economies.