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

Abstract

The paper examines demand for real money balances in six West Africa countries, over the 1985-2014 periods using panel Cointegration technique. The result shows that long run money demand is positively related to real income, inflation rate and inversely related to interest rate spread, real effective exchange rate and US real interest rate. Long run income elasticity is greater than unity and less than unity in short run. All variables are significant except effective exchange rate, thus; both currency substitution and capital mobility hypotheses hold in the long run while capital mobility holds only in the short run. We recommend that monetary aggregate should growth slower than economic growth to maintain price stability, countries should try to maintained stable exchange rate and ensured market driven interest rate policy. Keyword: Demand for Money; Interest Rate Spread; Capital Mobility and Currency Substitution, Panel Analysis.JEL CODE: E41, E52, C33, O11.

COVID-19 policy actions and inflation targeting in South Asia

“…To analyze which and how policy actions impacted the CPI in SAARC countries, we use a panel regression with robust standard errors. In line with earlier works on CPI based inflation and money supply (See: Thompson and Thompson, 2021 ; Farazmand and Moradi, 2015 ; Adi and Riti, 2017 ; Narayan, Narayan, & Prasad, 2006 ), our findings suggest a significant positive relationship between money supply and inflation during pandemic for all variants of our model. Amongst the different types of actions of policymakers our findings suggest that only monetary policy and financial actions had a significant negative impact on CPI in SAARC member countries during COVID-19 while for fiscal measures and Grants/Aids our findings are inconclusive (Results available in Table 3 ).…”

Impact of Foreign Reserves and Economic Growth on Money Supply: Evidence from the WAMZ Countries

“…According to the authors' knowledge, no study has investigated the long-run accumulation of foreign reserves and economic growth in the WAMZ. The few existing papers on the topic, such as Adi & Riti (2017); Chinwuba, Oshoke, & Thomas (2015); Joof & Tursoy (2020); Onyeiwu (2012), were not conducted on WAMZ countries; the closest study to this paper is by Joof & Tursoy (2020), who only tested the influence of foreign reserve on M2, while ignoring economic growth. Furthermore, the abovementioned studies focus on time series estimations.…”