IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/92343.html
   My bibliography  Save this paper

The Long Run Stability of Money Demand in the Proposed West African Monetary Union

Author

Listed:
  • Asongu, Simplice
  • Folarin, Oludele
  • Biekpe, Nicholas

Abstract

This study examines the stability of money demand in the proposed West African Monetary Union (WAMU). The study uses annual data for the period 1981 to 2015 from thirteen of the fifteen countries making-up the Economic Community of West African States (ECOWAS). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across ECOWAS member states in the stability of money demand. This divergence is informed by differences in cointegration, stability, short run and long term determinants, and error correction in event of a shock.

Suggested Citation

  • Asongu, Simplice & Folarin, Oludele & Biekpe, Nicholas, 2018. "The Long Run Stability of Money Demand in the Proposed West African Monetary Union," MPRA Paper 92343, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:92343
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/92343/1/MPRA_paper_92343.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Folarin, Oludele & Asongu, Simplice, 2017. "Financial liberalization and long-run stability of money demand in Nigeria," MPRA Paper 81190, University Library of Munich, Germany.
    2. Simplice Asongu, 2014. "Are proposed African monetary unions optimal currency areas? Real, monetary and fiscal policy convergence analysis," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 5(1), pages 9-29, April.
    3. Vanessa Tchamyou, 2018. "Education, Lifelong learning, Inequality and Financial access: Evidence from African countries," Working Papers of the African Governance and Development Institute. 18/003, African Governance and Development Institute..
    4. Kumar, Saten & Webber, Don J. & Fargher, Scott, 2013. "Money demand stability: A case study of Nigeria," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 978-991.
    5. Boateng, Agyenim & Asongu, Simplice & Akamavi, Raphael & Tchamyou, Vanessa, 2018. "Information asymmetry and market power in the African banking industry," Journal of Multinational Financial Management, Elsevier, vol. 44(C), pages 69-83.
    6. repec:eee:tefoso:v:139:y:2019:i:c:p:169-184 is not listed on IDEAS
    7. Simplice Asongu, 2015. "Liberalisation and Financial Sector Competition: A Critical Contribution to the Empirics with an African Assessment," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 425-451, September.
    8. Simplice Asongu, 2014. "How Would Monetary Policy Matter In The Proposed African Monetary Unions? Evidence From Output And Prices," The African Finance Journal, Africagrowth Institute, vol. 16(2), pages 34-63.
    9. Paul R. Masson, 2008. "Currency Unions in Africa: Is the Trade Effect Substantial Enough to Justify their Formation?," The World Economy, Wiley Blackwell, vol. 31(4), pages 533-547, April.
    10. repec:afe:journl:v:19:y:2017:i:2:p:33-66 is not listed on IDEAS
    11. Simplice Asongu, 2016. "New empirics of monetary policy dynamics: evidence from the CFA franc zones," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 7(2), pages 164-204, June.
    12. Simplice A. Asongu, 2014. "Linkages between investment flows and financial development: Causality evidence from selected African countries," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 5(3), pages 269-299, August.
    13. repec:eme:ajempp:ajems-03-2017-146 is not listed on IDEAS
    14. Gilles Dufrénot & Kimiko Sugimoto, 2013. "West African Single Currency and Competitiveness," Review of Development Economics, Wiley Blackwell, vol. 17(4), pages 763-777, November.
    15. repec:eme:ajempp:ajems-03-2017-144 is not listed on IDEAS
    16. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    17. Jimoh Olakunle SAKA & Ibiyemi Ajoke ONAFOWOKAN & Adekunle Ademayowa ADEBAYO, 2015. "Analysis of Convergence Criteria in a Proposed Monetary Union: A Study of the Economic Community of West African States," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 230-239.
    18. repec:eme:jespps:jes-01-2016-0008 is not listed on IDEAS
    19. Rup Singh & Saten Kumar, 2012. "Application of the alternative techniques to estimate demand for money in developing countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(2), pages 43-63, July-Dece.
    20. Simplice A. Asongu, 2014. "Does money matter in Africa?: New empirics on long- and short-run effects of monetary policy on output and prices," Indian Growth and Development Review, Emerald Group Publishing, vol. 7(2), pages 142-180, November.
    21. Vanessa S. Tchamyou & Simplice A. Asongu, 2017. "Information Sharing and Financial Sector Development in Africa," Journal of African Business, Taylor & Francis Journals, vol. 18(1), pages 24-49, January.
    22. Chuku, Chuku, 2012. "The proposed eco: should West Africa proceed with a common currency?," MPRA Paper 43739, University Library of Munich, Germany.
    23. repec:bla:afrdev:v:29:y:2017:i:2:p:293-304 is not listed on IDEAS
    24. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    25. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
    26. Zhao, Xiaodan & Kim, Yoonbai, 2009. "Is the CFA Franc Zone an Optimum Currency Area?," World Development, Elsevier, vol. 37(12), pages 1877-1886, December.
    27. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    28. repec:eee:riibaf:v:42:y:2017:i:c:p:1123-1136 is not listed on IDEAS
    29. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    30. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    31. Simplice A Asongu, 2013. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," Economics Bulletin, AccessEcon, vol. 33(1), pages 859-873.
    32. Alagidede, Paul & Coleman, Simeon & Cuestas, Juan Carlos, 2012. "Inflationary shocks and common economic trends: Implications for West African monetary union membership," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 460-475.
    33. Charalambos Tsangarides & Pierre Ewenczyk & Michal Hulej & Mahvash Saeed Qureshi, 2009. "Are Africa's Currency Unions Good for Trade?," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 876-918, November.
    34. Mohsen Bahmani-Oskooee & Hafez Rehman, 2005. "Stability of the money demand function in Asian developing countries," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 773-792.
    35. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.
    36. Simplice Asongu & Jacinta Nwachukwu & Vanessa Tchamyou, 2017. "A Literature Survey On Proposed African Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 878-902, July.
    37. Tchamyou, Vanessa S. & Erreygers, Guido & Cassimon, Danny, 2019. "Inequality, ICT and financial access in Africa," Technological Forecasting and Social Change, Elsevier, vol. 139(C), pages 169-184.
    38. Akinlo, A. Enisan, 2006. "The stability of money demand in Nigeria: An autoregressive distributed lag approach," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 445-452, May.
    39. Santi Chaisrisawatsuk & Subhash Sharma & Abdur Chowdhury, 2004. "Money demand stability under currency substitution: some recent evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 14(1), pages 19-27.
    40. Asongu, Simplice A. & Biekpe, Nicholas, 2018. "ICT, information asymmetry and market power in African banking industry," Research in International Business and Finance, Elsevier, vol. 44(C), pages 518-531.
    41. repec:ebl:ecbull:v:6:y:2008:i:12:p:1-10 is not listed on IDEAS
    42. Mohsen Bahmani-Oskooee & Abera Gelan, 2009. "How stable is the demand for money in African countries?," Journal of Economic Studies, Emerald Group Publishing, vol. 36(3), pages 216-235, July.
    43. Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 369-384.
    44. Thouraya Triki & Ousman Gajigo, 2014. "Credit Bureaus and Registration and Access to Finance: New Evidence from 42 African Countries," Journal of African Development, African Finance and Economic Association (AFEA), vol. 16(2), pages 73-101.
    45. Houssa, Romain, 2008. "Monetary union in West Africa and asymmetric shocks: A dynamic structural factor model approach," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 319-347, February.
    46. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    47. repec:afe:journl:v:19:y:2017:i:2:p:1-18 is not listed on IDEAS
    48. Michael Enowbi Batuo & Simplice A. Asongu, 2015. "The impact of liberalisation policies on income inequality in African countries," Journal of Economic Studies, Emerald Group Publishing, vol. 42(1), pages 68-100, January.
    49. Paul R. Masson, 2006. "New Monetary Unions in Africa: a Major Change in the Monetary Landscape?," Economie Internationale, CEPII research center, issue 107, pages 87-105.
    50. Tsangarides, Charalambos G. & Qureshi, Mahvash Saeed, 2008. "Monetary Union Membership in West Africa: A Cluster Analysis," World Development, Elsevier, vol. 36(7), pages 1261-1279, July.
    51. Agnès Bénassy-Quéré & Maylis Coupet, 2005. "On the Adequacy of Monetary Arrangements in Sub-Saharan Africa," The World Economy, Wiley Blackwell, vol. 28(3), pages 349-373, March.
    52. Asongu, Simplice & Batuo, Enowbi & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2018. "Is information diffusion a threat to market power for financial access? Insights from the African banking industry," Journal of Multinational Financial Management, Elsevier, vol. 45(C), pages 88-104.
    53. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    54. Chee-Heong Quah, 2016. "A Diagnostic on the West African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 84(1), pages 129-148, March.
    55. Rana Ejaz Ali Khan & Qazi Muhammad Adnan Hye, 2013. "Financial liberalization and demand for money: a case of Pakistan," Journal of Developing Areas, Tennessee State University, College of Business, vol. 47(2), pages 175-198, July-Dece.
    56. Akhtar Hossain, 1993. "Financial Reforms, Stability of the Money Demand Function and Monetary Policy in Bangladesh: An Econometric Investigation," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 28(1), pages 85-100, January.
    57. repec:taf:wjabxx:v:18:y:2017:i:2:p:257-277 is not listed on IDEAS
    58. Emmanuel Anoruo, 2002. "Stability of the Nigerian M2 Money Demand Function in the SAP Period," Economics Bulletin, AccessEcon, vol. 14(3), pages 1-9.
    59. Vanessa S. Tchamyou, 2019. "The Role of Information Sharing in Modulating the Effect of Financial Access on Inequality," Journal of African Business, Taylor & Francis Journals, vol. 20(3), pages 317-338, July.
    60. repec:afe:journl:v:19:y:2017:i:2:p:67-76 is not listed on IDEAS
    61. Simplice A. Asongu, 2013. "Real and monetary policy convergence: EMU crisis to the CFA zone," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(1), pages 20-38, April.
    62. repec:eme:ajempp:ajems-01-2016-0007 is not listed on IDEAS
    63. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    64. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    65. Simplice Asongu, 2014. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 82(2), pages 276-289, June.
    66. repec:eme:ajempp:ajems-03-2017-145 is not listed on IDEAS
    67. Rao, B. Bhaskara & Kumar, Saten, 2009. "A panel data approach to the demand for money and the effects of financial reforms in the Asian countries," Economic Modelling, Elsevier, vol. 26(5), pages 1012-1017, September.
    68. Lydia Ndirangu & Esman Morekwa Nyamongo, 2015. "Financial Innovations and Their Implications for Monetary Policy in Kenya," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 24(suppl_1), pages 46-71.
    69. James, Gregory A., 2005. "Money demand and financial liberalization in Indonesia," Journal of Asian Economics, Elsevier, vol. 16(5), pages 817-829, October.
    70. Olawale Ogunkola, 2005. "An evaluation of the viability of a single monetary zone in ECOWAS," Research Papers RP_147, African Economic Research Consortium.
    71. repec:taf:wjabxx:v:19:y:2018:i:4:p:455-474 is not listed on IDEAS
    72. Jean-Claude Nachega, 2001. "Financial Liberalization, Money Demand, and Inflation in Uganda," IMF Working Papers 01/118, International Monetary Fund.
    73. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    74. repec:afe:journl:v:20:y:2018:i:2:p:1-20 is not listed on IDEAS
    75. repec:afe:journl:v:19:y:2017:i:2:p:111-114 is not listed on IDEAS
    76. repec:wly:ijfiec:v:23:y:2018:i:1:p:19-28 is not listed on IDEAS
    77. repec:taf:wjabxx:v:19:y:2018:i:2:p:210-226 is not listed on IDEAS
    78. repec:eme:ajempp:ajems-03-2017-148 is not listed on IDEAS
    79. repec:eme:ajempp:ajems-12-2015-0143 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Simplice A. Asongu & Oludele E. Folarin & Nicholas Biekpe, 2019. "The Stability of Demand for Money in the Proposed Southern African Monetary Union," Working Papers 19/025, European Xtramile Centre of African Studies (EXCAS).

    More about this item

    Keywords

    Stable; demand for money; bounds test;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:92343. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.