Keyword

Money Demand, Autoregressive Distributed Lag, Panel Data Analysis, Vector Error Correction, Elasticity.

Abstract

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.


Full Text : PDF
References
  • Afees S., Idris A. and Basiru Fatai (2013), “Modeling the Demand for Money in Sub Saharan Africa”. Economics Bulletins, Vol. 33 (1).
  • Akinlo Enisan (2006), “The Stability of Money Demand in Nigeria: An Autoregressive Distributed Lag Approach”. Journal of Policy Model, 28 (4), page 445-452.
  • Boorman, J. T. (1976), Monetary Theory and Practices. Arlington Heights, IL (USA) AHM Publisher.
  • Chow (1966), Monetary Dynamics: An Application of Cointegration and Error Correction Modeling. Journal of Money, Credit and Banking, Vol. 23 (2). The Ohio State University Press.
  • Goldfeld M. S. (1973), The Demand for Money Revisited. Economic Activity, Vol. 1973 (3): 577-646. Brookings Institution Press.
  • Hamoris Shigeyyuki (2008), “Empirical Analysis of the Money Demand Function in Sub Saharan Africa”. Economic Bulletin 15: 1-15, Resource Version Publisher.
  • Nikolaos Dritsakis (2011), The Demand for Money in Hungary: An ARDL Approach. Review of Economics and Finance, University of Macedonian, Greece.
  • Pesaran M. H. and Shin, Y. (1999), “An Autoregressive Distributed Lag Modeling Approach to Co-integration Analysis”. Contenial Volume of Rangar Frisch, Cambridge University Press, Cambridge.