Money Demand, Autoregressive Distributed Lag, Panel Data Analysis, Vector Error Correction, Elasticity.
This study examines the factors affecting people’s desire to hold money in liquid form (relative to investing it) in sixteen countries in Africa. Earlier studies on this subject matter examined the connection between the demand for money and income, exchange rate, price and interest rate. This study extends this work by including debt and population. The method of analysis of this study is unprecedented as it incorporates the Auto-regressive Distributed Lag technique, Panel Data and Elasticity concepts. Furthermore, most studies on the demand for money made use of data of almost a decade ago. The world is evolving and studies on money demand should be contemporaneous with this trend. The study found out that debt service, income and population significantly affect money demand. With the exception of population, there is no short run causality of all the regressors and the outcome variable. However, they become cointegrated in the long run at -0.1918. Furthermore, there is no problem of serial correlation, heteroscedacity and poor distribution of residuals in the model. All variables are tested at 5% level of significance.
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