Determination of long and short run demand for money in the West African Monetary Zone (WAMZ) countries: A panel analysis

Agya Atabani Adi, Joshua Sunday Riti

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.


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